Better.com Disclosures Show The Company Had Concerns About Its Controversial CEO Long Before Placing Him On Leave

Vishal Garg, the CEO of online mortgage company Better.com, had multiple legal liabilities, conflicts of interest and corporate governance problems even before the company placed him on leave Friday, according to corporate disclosures filed by Better in advance of a public offering of its stock.

Garg, for instance, owns, controls or has a majority stake in multiple companies that are contracted by Better.com, the company said in an August filing with the Securities and Exchange Commission. They include a data analytics company called “thenumber,” in which Garg has a controlling stake and which is paid $8,500 a month for its services to Better.com. In the SEC filing, known as an S-4, Better also said it was negotiating a contract with Notable Finance, a company controlled by Garg, to exclusively underwrite, originate and service loans for home-improvement loans to customers. 

Better further disclosed that it had an agreement with a company called Embark, which is led by Garg’s wife, to rent space to the company in a Midtown Manhattan building. (That agreement was terminated in June.) And Garg’s investment firm, 1/0 Capital, which is staffed by two Better executives and is engaged in a compensation agreement of undisclosed value with Better, is an investor in both thenumber and Notable. Better.com, thenumber and Notable did not immediately respond to requests for comment.

“The landscape here has a conflict of interest hiding behind every bush,” said John C. Coffee, a corporate governance professor at Columbia Law. Coffee added that such disclosures are typical of so-called SPAC mergers, in which vehicles called special purpose acquisition companies are created to accelerate the path toward going public. Garg’s company “may be slightly worse than average,” Coffee said.

Garg has been at the center of a corporate maelstrom since last week, when he unceremoniously fired 900 people — or 9% of the Better.com workforce — during a Zoom call, a day after announcing Better had received a $750 million cash infusion from investors. Garg dismissed the departed workers as “lazy” on a social media site — but later apologized in a company-wide email for “blundering” the layoffs. 

On Friday morning, employees were informed that Garg would be taking a leave of absence, “effective immediately.” Paula Tuffin, the company’s general counsel, wrote in an internal memo seen by Forbes that the events of the previous week were “very regrettable.” She wrote that Better’s chief financial officer, Kevin Ryan, would step in as interim CEO and that the board had hired an outside firm to conduct a review of the company’s leadership and culture. 

Garg has a history of transgressions at Better.com that were first documented by Forbes in November 2020, including a series of lawsuits accusing the CEO and companies he controls of fraud. During a deposition in one of the cases, Garg threatened to “burn alive” a former friend who had become a legal adversary.

Among other allegations, Garg is facing claims he misappropriated $3 million from a software company he started with former college friend and business partner Raza Khan and then used stolen technology to help build Better. (Garg denied those claims and countersued). Two other lawsuits linked to a portfolio of CMBS loans — one brought by a group of Cayman Islands investors and another brought by a series of debtholders — alleged funds were misappropriated by a firm that manages the portfolio and is controlled by Garg. (A Better.com spokesperson responded at the time that “Lawsuits are an unfortunate fact of life for successful startups and their CEOs.”)

Over the summer, Better’s largest backer, SoftBank, urged Garg to end the ongoing litigation, even offering him voting shares as part of a secondary purchase of shares previously held by Goldman Sachs if he did so. SoftBank did not respond to a request for comment.

SoftBank isn’t the only investor to be unsettled by Garg. New York-based Pine Brook Partners had threatened to bring legal claims accusing Better and Garg of breaching fiduciary corporate governance responsibilities, according to the filing with the SEC, before ultimately settling its dispute with the company last month. Vice reported earlier this week that Garg had called the head of Pine Brook, Howard Newman, “sewage” in an email this year.

But it was Garg’s treatment of thousands of Better.com employees that appears to be the main factor leading to his ouster as CEO. Forbes reported last year that in an email, Garg wrote once to employees: “HELLO — WAKE UP BETTER TEAM…You are TOO DAMN SLOW. You are a bunch of DUMB DOLPHINS and…DUMB DOLPHINS get caught in nets and eaten by sharks. SO STOP IT. STOP IT. STOP IT RIGHT NOW. YOU ARE EMBARRASSING ME.”

In the S-4 disclosure to the SEC in August, the company reaffirmed that “Mr. Garg is critical to our operations and has been key to setting our vision, strategic direction and execution priorities.” The board had previously approved a $25 million bonus to Garg, as The Daily Beast reported, and has allowed him to take $41 million in personal loans secured by stock options he holds in Better.com. But with the planned SPAC merger facing delay, investors now face a reckoning over Garg’s role at the company.

Forbes Collections

Leave a Reply

Your email address will not be published. Required fields are marked *