A securities class action has been filed against Opendoor Technologies Inc. (OPEN) on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired: (a) Opendoor securities between December 21, 2020 through September 16, 2022, both dates inclusive (the “Class Period”); and/or (b) Opendoor common stock pursuant and/or traceable to the Offering Documents (defined below) issued in connection with the business combination between the Company and Opendoor Labs Inc. (“Legacy Opendoor”) completed on or about December 18, 2020 (the “Merger”). This case has been filed in the USDC – AZ.
Opendoor was formerly known as Social Capital Hedosophia Holdings Corp. II (“SCH”) and operated as a special purpose acquisition company, also called a blank-check company, which is a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person.
On September 15, 2020, the Company, then still operating as SCH, and Legacy Opendoor, a private company operating as a digital platform for residential real estate, announced their entry into a definitive agreement for the Merger (the “Merger Agreement”), which valued Legacy Opendoor at an enterprise value of $4.8 billion.
On October 5, 2020, the Company filed a registration statement on Form S-4 with the United States Securities and Exchange Commission (“SEC”) in connection with the Merger, which, after several amendments, was declared effective by the SEC on November 27, 2020 (the “Registration Statement”). On November 30, 2020, the Company filed a proxy statement/prospectus on Form 424B3 with the SEC in connection with the Merger, which formed part of the Registration Statement (the “Proxy” and, together with the Registration Statement, the “Offering Documents”).
On December 18, 2020, pursuant to the Merger Agreement, the Company, among other things, deregistered as a Cayman Islands company, registered as a Delaware company, changed its name to “Opendoor Technologies Inc.”, and consummated the Merger, whereby, among other things, Legacy Opendoor became a wholly owned subsidiary of the Company.
Following the Merger, the Company has operated a digital platform for buying and selling residential real estate in the U.S. 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.
The complaint alleges that the Offering Documents for the Merger were negligently prepared and, as a result, contained untrue statements of material fact or omitted to state other facts necessary to make the statements made not misleading and were not prepared in accordance with the rules and regulations governing their preparation. Additionally, throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and prospects. Specifically, the Offering Documents and Defendants made false and/or misleading statements and/or failed to disclose that: (i) the algorithm (“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; (ii) as a result, the Company was at an increased risk of sustaining significant and repeated losses due to residential real estate pricing fluctuations; (iii) accordingly, Defendants overstated the purported benefits and competitive advantages of the Algorithm; and (iv) as a result, the Offering Documents and Defendants’ public statements throughout the Class Period were materially false and/or misleading and failed to state information required to be stated therein.
On September 19, 2022, citing a review of industry data, Bloomberg reported that the Company appeared to have lost money on 42% of its transactions in August 2022 (as measured by the prices at which it bought and sold properties). Bloomberg further reported that the data was even worse in key markets such as Los Angeles, California, where Opendoor lost money on 55% of sales, and Phoenix, Arizona, where it lost money on 76% of sales. Worse, a global real estate tech strategist interviewed by Bloomberg, Mike DelPrete, predicted that, based on his analyses, September would likely be even worse for Opendoor than August. Bloomberg’s findings evidenced the failure of Opendoor’s Algorithm to adjust accurately to changing market conditions.
Following the Bloomberg report, Opendoor’s stock price fell $0.50 per share, or 12.32%, over the following two trading sessions, to close at $3.56 per share on September 20, 2022—an 88.61% decline from the Company’s first post-Merger closing stock price of $31.25 per share on December 21, 2020 (the “Initial Closing Price”).
As of the time this Complaint was filed, Opendoor’s common stock was trading significantly below the Initial Closing Price and continues to trade below its initial value from the Merger, damaging investors.