Detroit pensioners to withdraw lawsuit against Gilbert alleging insider trading
Detroit — The Detroit Police and Fire Pension Fund is moving to withdraw a lawsuit against billionaire businessman Dan Gilbert alleging insider trading, its board told The Detroit News Wednesday.
An investor in Rocket Co. — the corporate parent of Rocket Mortgage and Quicken Loans — initially requested records and documents in September seeking to investigate claims that Gilbert, its controlling stockholder, sold $500 million worth of stock based on insider information.
Gilbert sold the 20.2 million shares of RKT in March to fund a $500 million commitment he made at the end of that month to revitalize Detroit neighborhoods, the first major step in Detroit-focused philanthropy by the mortgage mogul and his wife, Jennifer Gilbert.
Aaron Emerson, spokesman for Rock Holdings Inc., said the claim that Gilbert acted using inside information not available to the public is "false and preposterous."
"We are glad to see the Police and Fire Retirement System for the City of Detroit were named as a plaintiff in this suit in error. The assertions in the complaint are baseless and defy logic," Emerson said in a statement to The News, adding the company has earned more than $10 billion in net revenue this year.
"Our leadership and company have been forthcoming and transparent in all releases, disclosures and statements," he said.
The lawsuit filed Nov. 23 in Delaware Chancery Court accused Rock Holding Inc. of dumping more than 20 million shares on March 29, two days before the end of Rocket's first 2021 fiscal quarter. Rocket sold at a stock price of $24.75, generating $499.75 million, the complaint says.
RKT jumped to $41 per share on March 3, but shortly after Gilbert's sale, the shares traded at $22 on April 5.
On May 5, Rocket announced the first-quarter results and reported a gain-on-sale margin of 3.74%, "well below the 4.4% gain on sale margin reported in the prior quarter and market expectations," according to the suit. By May 12, RKT dropped to $16 a share.
The company also issued guidance in the range of 2.65% to 2.95% for the second quarter of 2021. It was the company's lowest quarterly gain on sale margin in two years, according to the filing.
The Police and Fire Retirement System Board of Trustees holds a nominal amount of shares in RKT, PFRS Board spokesman Bruce Babiarz said. The exact amount was not available Wednesday.
Babiarz said PFRS and the city of Detroit will engage in derivative and securities lawsuits to protect its investments of the pension fund and "its $3 billion investment allocations as well as to promote good corporate governance."
While PFRS is named as a plaintiff in the suit, the filing was based on a miscommunication by counsel and a third-party law firm, Babiarz said: "The firm was authorized to review the case and do fact-finding but not authorized to file a lawsuit. These lawsuits are typically filed by third-party law firms — not PFRS general counsel — and are often done under limited time frames for court filings.”
The lawsuit was initially sealed due to proprietary data, he said.
"It appears a full measure of the facts were not known at the time of the filing by an outside law firm. I have been advised that the PFRS General Counsel has taken steps to ensure that PFRS be removed as a party to this lawsuit immediately."
Jeff Pegg, a city firefighter and board trustee since 2004, told The News he was not aware of any lawsuit filed on behalf of the pensioners and the miscommunication would be discussed at the board's next meeting on Dec. 16.
Four of Rocket's seven-member board are not independent directors, including Gilbert, his wife, Jennifer Gilbert, Matthew Rizik, a director and officer of RHI who provides consulting services, and Jay Farner, a longtime business confidante of Gilbert who serves as Rocket's chief executive officer.
The suit alleged that Farner downplayed concerns more competition in the mortgage industry would "play into that gain-on-sale margin," stating, "Sure, there can be ups and downs in margin and interest rate for a short period of time as that kind of works it through, but as we get to the other side of that, what you find is usually fewer competitors," according to the suit.
Emerson defended Rocket's reputation: "We have built for doing the right thing over the last 36 years and continue to focus on our team members, clients, shareholders and the communities we serve.”