Opendoor (OPEN) Omissions About Algorithm Securities Class Action

Opendoor Technologies, Inc. was formed via a merger to operate a digital platform for flipping residential real estate. Unfortunately, the algorithm it was using to make its offers for homes was not adequate. The complaint for this securities class action alleges that the offering documents filed for the merger “were negligently prepared” and that they contained untrue statements and omissions, so that those who bought the stock experienced losses.

The class for this action is all persons and entities, other than the defendants in this case, who bought or acquired (1) Opendoor securities between December 21, 2020 and September 16, 2022, or (2) Opendoor common stock pursuant to or traceable to the offering documents issued in connection with the merger that formed Opendoor, and who were damaged thereby.

Opendoor Technologies was formed by a merger between a special-purpose acquisition entity, Social Capital Hedosophia Holdings Corp. II (SCH), and Opendoor Labs, Inc. (Legacy Opendoor) in December 2020.

In connection with the merger, the companies filed a Form S-4 registration statement with the Securities and Exchange Commission (SEC) that, after some amendments, was declared effective in November 2020. Later they filed a proxy or prospectus that, along with the registration statement, comprised the offering documents.

On December 18, 2020, the companies merged to become Opendoor Technologies. Three days later, Opendoor common stock and warranties began trading on the NASDAQ, under the symbols OPEN and OPENW, respectively.

The merged company ran a digital platform for buying and selling residential properties in the US. The complaint alleges, “The Company’s platform features a technology known as ‘iBuying,’ which is an algorithm-based process that purportedly enables Opendoor to make accurate market-based offers to sellers for their homes, and then flip those homes to buyers for a profit.”

However, the complaint alleges that the offering documents “were negligently prepared” and contained untrue statements and material omissions. Among other things, the complaint claims that the algorithm “used by the Company to make offers for homes could not accurately adjust to changing house prices across different market conditions and economic cycles” which meant that it could not always recover its money when it flipped properties.

In September 2022, the complaint alleges, a report from Bloomberg said that at one point the company was losing money on 42% of its transactions, with the losses being worse in certain important markets, such as Los Angeles (where 55% of sales involved losses) and Phoenix (where 76% involved losses). According to the complaint, the report showed that Opendoor’s algorithm was flawed and could not adjust for changing conditions.

After the report came out, Opendoor’s stock fell by 50 cents per share (12.32%) over two trading sessions and closed at $3.56 per share on September 20, 2022, which represented an 88.61% fall from the company’s first post-merger closing price of $31.25.

The complaint brings suit under the Securities Act of 1933 and the Securities Exchange Act of 1934.

Article Type: Lawsuit
Topic: Securities
Tags: Providing False or Misleading Information, Registration Statement, Securities, Stock Losses