Key facts
- A shareholder filed a class-action lawsuit against UWM Holdings Corp. and executives, including CEO Mat Ishbia.
- The suit alleges UWM misled investors about its hedging strategy, particularly concerning the failed acquisition of Two Harbors Investment Corp.
- The complaint claims UWM engaged in "over-hedging" that created undisclosed risks, leading to a significant net loss and stock price decline.
- UWM reported a $451.9 million net loss in Q2, with a $603.2 million loss on interest rate derivatives.
- The lawsuit alleges violations of the Securities Exchange Act of 1934.
A UWM Holdings Corp. shareholder has initiated a proposed class-action lawsuit, alleging the wholesale mortgage lender misled investors regarding its hedging strategy. The complaint, filed in the U.S. District Court for the Eastern District of Michigan, centers on UWM's alleged deviation from its standard hedging practices in anticipation of acquiring Two Harbors Investment Corp.
The lawsuit claims that UWM "over-hedged" for the potential Two Harbors transaction, creating "excess hedging risk" that was not adequately disclosed to investors. This alleged undisclosed exposure contradicted the company's public statements about its business operations and financial prospects, according to the filing.
As a consequence of these alleged wrongful acts, the plaintiff asserts that investors suffered significant losses. The complaint points to UWM's second-quarter financial results, which revealed a $451.9 million net loss and a 43.6% year-over-year decline in equity. A substantial portion of this loss, $603.2 million, was attributed to interest rate derivatives.
During an August 5 earnings call, UWM Chairman, President, and CEO Mat Ishbia acknowledged that the company was "over-hedged" in preparation for the Two Harbors deal. Following this disclosure, UWM's stock price experienced a sharp decline of 34.78%, closing at $1.20 on August 6, on unusually heavy trading volume.
The plaintiff, identified as investor Doug Bond, seeks to represent shareholders who purchased UWM securities between March 9 and August 5. The suit alleges violations of the Securities Exchange Act of 1934 and related SEC rules, and requests a jury trial for compensatory damages, interest, and legal fees.
The failed acquisition attempt involved UWM and Two Harbors entering an all-stock merger agreement in December, valued at $1.3 billion. However, Two Harbors terminated the agreement in March after receiving a superior cash offer from CrossCountry Mortgage, which also agreed to cover UWM's termination fee.