Better Home & Finance has sued founder and former CEO Vishal Garg, escalating a rapidly deteriorating dispute over control of the mortgage company less than three weeks after his departure as chief executive.
The lawsuit, filed Tuesday in federal court in New York, accuses Garg of violating federal securities laws as part of an effort to replace five directors and return to a leadership role at the company he founded.
The legal fight marked a major escalation in a dispute that has grown increasingly hostile since Better announced Garg’s departure Aug. 3. In that initial announcement, the company said Garg and the board had “mutually agreed” for him to transition out of the CEO role, with Daniel Lewis taking over on an interim basis.
But after Garg began publicly pushing to return to company leadership, Better abandoned that framing.
In an Aug. 14 statement, the company said the board, excluding Garg, had unanimously voted to terminate him as CEO and accused him of trying to regain control of the company. Better also alleged that Garg delayed the company’s quarterly filing by refusing to sign required representation letters in a timely manner.
Better escalated its criticism again Aug. 17, calling Garg’s effort a “disruptive campaign” and saying he lacked sufficient shareholder support to remove directors. The lawsuit filed the following day adds federal securities-law claims to a fight that had already spilled into shareholder solicitations, media appearances and competing public statements.
Garg, meanwhile, has argued through securities filings and public statements that Better needs a leadership overhaul and has continued pursuing a formal shareholder solicitation aimed at removing directors.
The dispute escalated again Thursday when Better’s special board committee adopted a limited-duration shareholder rights plan aimed at preventing Garg or an affiliated investor group from gaining control of the company without further disclosures or paying what the company described as an appropriate control premium.
The plan, commonly known as a “poison pill,” generally would be triggered if a person or group acquires 15 percent or more of a class of Better stock or its voting power. Better said the plan would not prevent shareholders from supporting Garg or soliciting proxies.
The plan is effective immediately and is set to expire at Better’s 2027 annual meeting unless the board ends it sooner.
Better alleges securities violations in Garg campaign
In its lawsuit, Better alleges that Garg began organizing shareholders within days of his removal and failed to properly disclose what the company describes as a coordinated group seeking to replace directors and reinstall him as CEO.
An Aug. 10 letter from Garg’s attorneys claimed that a “Group of Concerned Shareholders” represented 51.65 percent of Better’s voting power. The letter identified Garg, Activant Capital founder Steven Sarracino and several other investors among those backing the effort, while saying additional shareholders were also likely to support him.
Better alleges that the group’s coordination triggered federal securities disclosure requirements and that Garg also improperly solicited shareholder support before filing required proxy materials.
A separate securities filing from Sarracino and Activant later said they, Garg and investor Tony Bobulinski “may be deemed to constitute a group” holding approximately 26.8 percent of Better’s outstanding shares.
The complaint points to letters, direct communications with investors, an Aug. 13 press release, media interviews and social media activity as examples of what Better alleges amounted to solicitation before Garg filed a preliminary consent statement with the Securities and Exchange Commission on Aug. 17.
In one Aug. 12 text included in the lawsuit, Garg described the desired outcome as replacing the board, reinstalling him as CEO and eventually moving him into a product and innovation role. Garg described that plan as what 60 percent of Better shareholders wanted, according to the message.
Garg publicly announced the following day that he had secured majority shareholder support for his effort. His proposal included working for $1 until Better became profitable, personally investing $5 million, pursuing a $30 million stock buyback and eventually conducting a search for a permanent CEO. He also called for completing the sale of Better’s U.K. banking operation, which he said could generate about $74 million.
Better is asking the court to declare that Garg violated federal securities laws, require additional disclosures and temporarily halt further solicitation. The company also wants the court to invalidate consents or other expressions of support it alleges were obtained improperly.
Better CEO Vishal Garg discusses the company’s plans with Clelia Peters at Inman Connect New York in 2023. | Credit: AJ Canaria Creative Services
Garg concedes consents fell short
Garg’s campaign hit a setback Tuesday when he acknowledged in an amended Schedule 13D that written consents delivered as part of his effort to remove Better directors did not actually represent a majority of the company’s voting power.
The filing attributed the shortfall to an “administrative error” based on information Garg’s side said had been provided by Better’s in-house securities and regulatory counsel. It also said Garg and the shareholders involved in that earlier consent effort had “disbanded their respective efforts.”
Better’s complaint also points to Garg’s media campaign as part of what it alleges was an improper solicitation effort. During a live Bloomberg interview on Aug. 14, Garg said he had “already corralled 52 percent of the vote,” declared that “the shareholders have spoken” and argued that interim CEO Daniel Lewis lacked the support of employees and shareholders.
Better disputed Garg’s claims at the time, saying the written consents his attorneys delivered Aug. 14 did not amount to a majority, even after another consent was submitted two days later.
Garg’s broader campaign to return to a leadership role at Better and remake its board has continued through this week, however.
On Aug. 17, Garg filed a preliminary consent statement seeking shareholder approval to remove interim CEO Daniel Lewis and directors Arnaud Massenet, Bhaskar Menon, Prabhu Narasimhan and Harit Talwar. The filing also seeks to roll back certain bylaws adopted after Aug. 22, 2023.
After Inman sent a request for comment to Better’s general communications email address, a representative of a third-party communications firm responded and offered to provide information on background. At the start of the subsequent conversation, the representative agreed that the information could be attributed to a Better spokesperson.
Inman later sought clarification from Better about the representative’s role. Better said the individual was not authorized to speak on the company’s behalf, while the representative subsequently told Inman that they were representing Garg.
Better also confirmed to Inman that the communications firm had access to the company’s email alias and was subsequently removed from it. Inman did not use information provided by the representative in this story. Another representative of the same firm had contacted an Inman reporter six days earlier, offering an interview with Garg following Inman’s coverage of his departure as Better’s CEO.
