Rocket Companies Seeks Dismissal Of Reddit-Fueled Meme Stock Lawsuit

In November 2022, Rocket Companies was accused of becoming a Reddit-driven meme stock, but a recent motion in a shareholder lawsuit is urging a federal judge to dismiss the case. 

The proposed class of investors accused the parent company of Rocket Mortgage and its executives of misleading shareholders in 2021 through statements about the lender's growth. 

Rocket's defense, filed last week, argues that the internet-fueled stock price volatility invalidates the plaintiffs' claims, pointing to the stock's Reddit-fueled meme stock status during the short two-month class period. The lawsuit involves Rocket's stock performance between February and May 2021, with plaintiffs attributing stock losses to executives' statements during that period. 

A federal judge had previously allowed the lawsuit to proceed, but Rocket's defense now attributes the stock's fluctuations to social media-driven hype. 

"Rocket’s stock price was driven by enthusiasm on Reddit and Twitter, and not by new, value-relevant information about Rocket," the lawsuit states. "Social media users decided to make Rocket’s stock price shoot up apparently just because they liked the rocket emoji (🚀), which they used as their rallying cry for driving up the price of stocks 'to the moon' through coordinated irrational trading."

Only 7% of Rocket’s stock is publicly held, with nearly all of the remaining 93% held directly or indirectly by Rocket’s founder and Chairman Daniel Gilbert.

Rocket Companies seeks to exclude an expert witness for the plaintiffs and dismiss an insider trading claim against Gilbert contending that the principal plaintiff experienced no detriment as a result of the founder's substantial $500 million private transaction in late March 2021, which occurred just days before a Rocket earnings announcement. 

Rocket's stock currently hovers around $13.74 per share, after experiencing fluctuations in 2023 due to rising interest rates in the mortgage market.