A New York City-based law firm that a month ago announced it was preparing a class action lawsuit against real estate giant Realogy finally pulled the trigger, filing a federal suit Thursday in the U.S. District Court of New Jersey.
The Rosen Law Firm filed the suit alleging securities fraud against Realogy Holdings Corp. and a slew of its executives: former CEO Richard A. Smith, current CEO Ryan M. Schneider, former CFO Anthony E. Hull and current interim CFO Timothy B. Gustavson.
The complaint alleges Realogy and its leaders failed to disclose its “anticompetitive” practice of requiring homesellers to pay the buyer broker commissions “at an inflated rate” and that those “anticompetitive actions would prompt the U.S. Department of Justice (‘DOJ’) to open an antitrust investigation into the real estate industry’s practices regarding brokers’ commissions.”
Those omissions caused investors to buy or sell Realogy stock at inflated or distorted prices, according to the complaint.
In an emailed statement, Realogy spokesperson Trey Sarten told Inman, “Realogy believes the allegations in the complaint are without merit, and we intend to vigorously defend this action.”
Realogy’s stock plummeted to a new record low — $5.87 per share — on Wednesday on the heels of the company filing a blockbuster lawsuit against rival brokerage Compass for “unfair business practices and illegal schemes to gain market share at all costs.” The company’s stock has dropped precipitously from around $23 per share a year ago and above $40 per share back in 2015.
The suit’s allegations refer to drops in Realogy’s stock after news reports concerning scrutiny of real estate commissions. The complaint says Realogy shares fell $0.21, or more than 1.7 percent, to close at $12.07 on March 12, 2019, after a March 11 article from The Real Deal about a lawsuit filed by homeseller Christopher Moerhl against Realogy and others for allegedly requiring homesellers to pay buyer brokers at inflated rates. (For timing considerations, Inman’s article on the suit, which The Real Deal cites, published three days earlier.)
The complaint then points to an April 18 Housingwire article on an additional, nearly identical suit filed against Realogy over buyer broker commissions upon which the complaint alleges “shares of Realogy fell $0.57, or over 4.4 percent, to close at $12.327 on April 22, 2019, damaging investors.” (Inman’s article on this second suit published on April 16.)
Lastly, the complaint says media reports on May 22 “revealed that the DOJ opened an investigation regarding antitrust practices of the real estate industry, which included Realogy.” The complaint cites a Bloomberg article from that day about an investigative demand from the DOJ to major MLS system vendor CoreLogic for information about the ability to search listings on multiple listings services (MLSs) based on compensation offered to buyer brokers. (Inman first reported the investigation on May 21.)
The complaint alleges that on the news of Realogy’s inclusion in the DOJ investigation, “shares of Realogy fell $0.71, or over 9 percent, over the next two trading days to close at $7.13 on May 23, 2019, further damaging investors.”
Neither the Bloomberg or Inman articles say that Realogy is part of the DOJ investigation. The DOJ has declined to comment to Inman on this question. Inman has reached out to the Rosen Law Firm to ask how it knows Realogy is part of the DOJ probe and to ask about the timing between when news events first broke and Realogy’s stock drops. We will update this story if and when we hear back.
The suit, filed on behalf of plaintiff Sasa Tanaskovic, seeks class action status to represent the “hundreds or thousands” of investors who purchased Realogy stock between February 24, 2017 through May 22, 2019.
“Defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of Realogy’s value and performance and continued substantial growth,” the plaintiff’s attorney, Laurence M. Rosen, wrote in the complaint.
“Such Defendants’ material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Realogy’s financial condition from the investing public and supporting the artificially inflated price of its securities,” he added.
The complaint demands a trial by jury and seeks compensatory damages.
The Rosen Law Firm is the firm behind a class action lawsuit filed against Zillow that alleged the real estate technology company defrauded investors by failing to disclose its agent-lender co-marketing program was in violation of real estate anti-kickback laws, specifically the Real Estate Settlement Procedures Act (RESPA).
The lawsuit was dismissed in October 2018, but the plaintiffs filed an amended complaint that is going forward after a federal court refused to dismiss the case, saying the plaintiffs had “plausibly alleged” that Zillow violated RESPA through its co-marketing program and made misleading statements regarding its compliance.
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