A class action lawsuit was filed against Ready Capital Corp. (RC) by Levi & Korsinsky on March 6, 2025. The plaintiffs (shareholders) alleged that they bought RC stock at artificially inflated prices between November 7, 2024 and March 2, 2025 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Ready Capital stock during that period can click here to learn about joining the lawsuit.
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Ready Capital is a commercial mortgage real-estate investment trust (REIT). It engages in acquiring, originating, managing, and financing commercial real estate (CRE) loans and real estate-related securities.
The company’s claims about the health of its CRE portfolio, especially the quality and extent of its non-performing loans are at the heart of the current complaint.
Ready Capital’s Misleading Claims
According to the lawsuit, Ready Capital and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about certain loans in the Company’s CRE Portfolio, and ancillary issues, from SEC filings and related material.
For instance, during the Class Period, the CEO expressed confidence that the company’s CRE portfolio was improving in terms of credit metrics. Additionally, he noted that Ready Capital was well positioned to leverage the expected tailwinds in the CRE market.
In a quarterly report filed on November 12, 2024, the company stated that its allowance for credit losses included both allowance for loan losses and lending commitments, with both reported on a post-amortization basis. Moreover, these loans and lending commitments are reviewed quarterly to check for further deterioration or improvement, based on quality indicators such as probable and historical losses, collateral values, Loan-to-Value (LTV) ratio, and economic conditions.
Finally, the company stated that its CECL (Current Expected Credit Loss) estimates for loan portfolios could change significantly in the future based on available future macroeconomic data.
However, subsequent events (discussed below) revealed that Ready Capital misled investors about the provision for loan losses in its CRE portfolio.
Plaintiffs’ Arguments
The plaintiffs maintain that the defendants deceived investors by lying and withholding critical information about the business practices and prospects during the Class Period. Importantly, the defendants are accused of misleading investors regarding the health and future estimates of the CRE portfolio.
The information became clear before the market opened on March 3, 2025, when Ready Capital released its Q4 and full-year Fiscal 2024 results. The company posted a net loss of $1.80 per share in Q4 and $2.52 per share for the full year. The company attributed the loss to decisive actions taken to stabilize its balance sheet. RC had to fully reserve for all of its non-performing loans in its CRE portfolio, which had a direct impact on its bottom line.
Furthermore, the company had to mark-to-market all of its non-performing CRE loans, leading to a $284 million combined CECL valuation allowances. This also disturbed the company’s balance sheet position, resulting in a higher total leverage ratio of 3.8x, up from the prior quarter’s ratio of 3.3x. Following the news, RC stock plunged 26.9% on March 3.
To conclude, the defendants allegedly misled investors about the bad quality of its CRE loan portfolio, which ultimately impacted its profits. Owing to these challenges, RC stock has lost 34.4% so far this year.
