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SEC Investigating Merger Deal

Jul 15, 2022 logo (new)

Investigation follows lawsuit filed by former executive who claimed company & CEO 'misled investors' and Aurora Acquisition Corp., which agreed to a merger last year, are under investigation by the Securities & Exchange Commission (SEC) to determine whether Better has violated federal securities laws.

In an amendment to a Form S-4 Registration Statement filed Wednesday with the SEC, Aurora states that in the second quarter of 2022, “Better and Aurora each received voluntary requests for documents from the Division of Enforcement of the SEC indicating that it is conducting an investigation relating to Better to determine if violations of the federal securities laws have occurred.“

The filing continues, “The SEC has requested that Better and Aurora voluntarily provide the SEC with certain information and documents.”

According to the filing, those documents are related to: 

  • Certain aspects of Better’s business and operations, 
  • Certain matters relating to certain actions and circumstances of the Better Founder and CEO and his other business activities, 
  • Related party transactions, and 
  • Allegations made in litigation filed by Sarah Pierce, Better’s former head of sales and operations. 

The filing states that Better and Aurora are cooperating with the SEC. 

It adds, “As the investigation is ongoing, neither Better nor Aurora are able to predict how long it will continue or whether, at its conclusion, the SEC will bring an enforcement action against either of them and, if it does, what remedies it may seek. Regardless of the outcome, this investigation could impose a significant cost and divert resources and the attention of members of our executive management from our business.”

Pierce filed her lawsuit on June 9, claiming she was terminated in retaliation for raising concerns that the company had violated securities laws and misled investors. Filed in U.S. District Court for the Southern District of New York, the lawsuit seeks a total of $195 million in compensatory and punitive damages.

In the lawsuit, Pierce claims that after she raised concerns that CEO Vishal Garg and had violated securities laws and misled investors, the CEO and the company retaliated by “scapegoating her for the company’s deteriorating financial state” before eventually terminating her on Feb. 4, 2022.

She claims she repeatedly spoke to Garg, General Counsel Nicholas Calamari, CFO Kevin Ryan, General Counsel Paula Tuffin, and the board of directors about misleading statements Garg made about the company’s financial prospects and performance. This included a Jan. 12, 2022, “on the record” employee interview with Tuffin in which Pierce stated that Garg “had a history of providing misleading financial statements and information to investors and disregarding the notice requirements of, at least, the California Warn Act.”

The lawsuit specifically describes a now famous Zoom meeting held in December, in which Garg coldly announced the layoff of 900 employees. According to the lawsuit, Garg “disregarded company-approved talking points that specifically categorized the event as a reduction in force and made the event about himself.” The lawsuit adds that Garg “publicly defamed the 900 employees,” stating they had “stolen from the company,” and that the terminations “violated the notice provision of, at least, the California WARN Act.”

In addition, the lawsuit states, following that meeting Garg “began to state to the board of directors and investors that the company would achieve profitability” in the first quarter of 2022, “despite Pierce and other senior leaders explicitly stating that this outcome was not possible.”

According to company filings with the Securities & Exchange Commission, lost more than $300 million last year.

In addition, the company had previously announced plans to go public via a Special Purpose Acquisition (SPAC) transaction, in which Better Holdco Inc. would merge with Aurora Acquisition Corp., a shell company sponsored by Novator Capital. As part of that deal, a SoftBank Group subsidiary committed to make a $1.5 billion investment in the combined company. Novator also committed to investing $200 million in the merged company.

According to Pierce’s lawsuit, “Since the May 2021 SPAC transaction announcement, CEO Garg has engaged in inappropriate, and potentially illegal, conduct … intended to ensure that the SPAC transaction closes and that the investors do not exercise their contractual right to withdraw from that transaction due to material adverse change in Better’s financial condition.”

Her lawsuit adds that Garg’s conduct, “aided by General Counsel Calamari, was designed to benefit CEO Garg’s personal interests at the expense of the company’s, and its shareholders’, interests.”

In November, Better announced it would push back the date for its public listing after amending the deal with Aurora. Under terms of the new agreement, Better would immediately receive $750 million in bridge financing, and another $750 million of the equity investment would be replaced by a convertible note.

On Thursday, Better Holdco Inc. issued a news release stating that it has continued the process to become a publicly listed company through a merger with Aurora, “when Aurora submitted amendment No. 6 to its Form S-4 registration statement with the Securities & Exchange Commission. At closing, the deal is expected to unlock for the combined company $750 million in new capital.”

The news release does not mention the SEC investigation.

About the author
David Krechevsky was an editor at NMP.
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