Compass founder and CEO Robert Reffkin paid $335.50 — less than the cost of a single electronic Compass yard sign — for his stake in the now-$6.4 billion company, according to a new legal filing.
The filing — a stock agreement between Compass and Reffkin — was submitted in a $200 million lawsuit from Avi Dorfman, founder of now-defunct real estate startup RentJolt. Dorfman says he was instrumental in the founding of Compass before being cut out of the business.
In a lawsuit against Compass and Reffkin first filed in 2014, Dorfman claimed he had met Reffkin two years earlier and Reffkin had allegedly proposed working together and eventually extended a job offer to Dorfman. In exchange for working with Reffkin, Dorfman was allegedly supposed to become a “founding team member” of Compass and would have some ownership of the fledgling brokerage.
The lawsuit claims Dorfman provided Reffkin with proprietary information and technology from RentJolt, and that Reffkin used RentJolt material to solicit investors. However, the suit claims that Reffkin ultimately took trade information from RentJolt and “disposed of Dorfman.”
In a legal filing, a compensation expert hired by Dorfman credits Dorfman with educating Reffkin on Redfin’s business model and urging him to turn the direction of Compass from tech disrupter to tech-optimized traditional brokerage. “The majority of those who enter this space from a tech perspective do so with the view that brokers do not add any value. . . . This is not the case.” Dorfman told Reffkin in a July 2012 email, adding “[t]his is not a business that can be won by tech alone.”
According to the filing, “Dorfman’s Redfin analysis was used almost verbatim in Reffkin’s financing discussions with Goldman Sachs, and the technology-enabled brokerage model, touted by Dorfman, became part of Compass’s financing deck to investors. Indeed, Reffkin acknowledged the importance of Dorfman’s briefings on Redfin to the overall direction of the business.”
The expert’s report said Dorfman was entitled to a similar ownership stake in Compass as the firm’s other founders, Reffkin and Ori Allon, Compass’ chairman.
According to Reffkin’s October 2012 “Founder Restricted Stock Agreement” with Urban Compass (as Compass was previously known), he bought 3.355 million shares of common stock in the company in exchange for $0.0001 per share, or $335.50. The shares became fully vested after three years of Reffkin’s full-time employment at the company.
Even after this date, with some exceptions, Compass retains the right of first refusal should Reffkin decide to sell any of his shares, according to the agreement. Should Compass file for an initial public offering (IPO) — which the company plans to do, though not in the next 18 months — Reffkin would not be able to make any moves toward selling his stock in the period beginning with the filing of a registration statement with the Securities & Exchange Commission (SEC) and ending 180 days from the date of the final prospectus relating to the offering.
At the time Dorfman first filed the lawsuit, Compass was valued at $360 million. In the years since, however, the brokerage has raised more than $1 billion and was valued at $6.4 billion in a $370 million funding round in July. Based on that round, Reffkin’s shares are now worth $517.5 million and while his stake was likely diluted over the years, his original stock amounts to roughly 8.5 percent of the company, according to The Real Deal.
In early October, a New York Supreme Court judge ruled that Dorfman is entitled to a jury trial. Compass is appealing the ruling. In the meantime, attorneys for Compass submitted a legal filing on Monday arguing that Dorfman should not be allowed to argue that the jury should award him damages premised on the current value of Compass stock.
“Dorfman seeks to transform a few weeks of time into a windfall approaching $80 million,” Compass said in the filing.
“Dorfman is seeking damages based on what he now says he expected to receive in exchange for, by some measures, approximately 80 hours of work that he allegedly performed while Defendant Reffkin was developing the idea for Compass. This work consisted of tasks like drafting a rudimentary business plan and helping prepare slides for use with potential investors,” the brokerage added.
“Although Dorfman cannot point to a single instance in which he asked for any compensation for these services before doing this work, he nevertheless now maintains he should receive the equivalent of between 5.96% and 6.91% of Compass’s stock, which his experts say would be worth between $68,434,252 and $79,292,687.”
In a separate legal filing, Dorfman’s legal team provided transcripts of text messages that show Reffkin wanted to hire Dorfman for a year in September 2012, believing that after three months “I think we’ll get all the info we need,” and that offering Dorfman a consulting position would get “rid of the legal risk while not taking equity.”
Reached for comment Thursday, Dorfman declined to comment and instead provided statements from his legal team.
“I have great faith in our jury system and its ability to hold wrongdoers accountable. We look forward to presenting Avi’s case to a jury,” said Steve Susman, Susman Godfrey managing partner.
Jonathan Harris of Harris St. Laurent added, “It’s always a choice how to treat people and whether to make it right. Compass has chosen not to make this right. We believe a jury will.”
Compass’ rapid rise has been enabled by, among other things, massive infusions of cash from Japanese investment firm Softbank, which has also backed other high-profile companies such as WeWork.
That rapid rise and the aggressive tactics that came along with it have made Compass a frequent target of criticism as well as litigation.
Most notably, real estate giant Realogy is currently suing Compass over what it says are unfair recruiting methods, among other things. That suit has grown increasingly bitter, with both sides sharply criticizing the other’s practices.
Compass itself is not afraid to threaten legal action. The brokerage sent a “pre-litigation letter” to Bright MLS this week over the multiple listing service’s new pocket listing policy.
Compass did not respond to a request for comment for this story.
See the stock agreement: