Ready Capital Faces Investor Lawsuit Over Alleged Financial Misstatements: What the Legal Battle Means for Stockholders
7min read The recent surge in legal scrutiny surrounding mortgage real estate investment trust (REIT) Ready Capital Corp. (NYSE: RC) has sent shockwaves through investor circles. On April 25, 2025, law firm Faruqi & Faruqi LLP filed a securities class action lawsuit in the U.S. District Court for the Southern District of New York, accusing the company and its executives of misleading investors about its financial health and compliance with federal lending rules. The case, now in its early stages, centers on allegations of material misstatements that allegedly inflated Ready Capital’s stock price—and then led to a catastrophic collapse in value.
The Allegations: Overstated Compliance and Hidden Risks
The lawsuit claims that Ready Capital and its senior leadership violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by disseminating “materially false and misleading” statements between November 7, 2024, and March 2, 2025. Specifically, Faruqi & Faruqi alleges that the company:
- Oversold its underwriting standards, falsely assuring investors that its commercial real estate (CRE) loans adhered to strict risk controls.
- Failed to disclose non-performing loans, including a significant portfolio of CRE loans deemed unlikely to be repaid.
- Misrepresented CECL reserves, inaccurately reporting reserves meant to stabilize the CRE portfolio.
The trigger for the lawsuit came on March 3, 2025, when Ready Capital revealed its fourth-quarter 2024 results, including a net loss of $1.80 per share and a $284 million combined CECL and valuation allowance to address problem loans. The company’s stock price collapsed by 26.8% that day, closing at $5.07—a stark reversal from its $6.93 closing price the prior day.
Legal Timeline and Investor Implications
The lawsuit’s key deadlines are critical for investors who held Ready Capital shares during the class period (November 7, 2024, to March 2, 2025):
- May 5, 2025: The deadline to apply to become the lead plaintiff in the case, which requires having the largest financial stake and being “adequate and typical” of class members.
- Ongoing investigation: Faruqi & Faruqi is also probing potential claims against Ready Capital’s executives for alleged misconduct in loan underwriting practices, including failure to properly assess borrower creditworthiness.
The firm emphasizes that investors who suffered losses may qualify for compensation if the case succeeds. Partner Josh Wilson of Faruqi & Faruqi urges affected investors to contact the firm directly by May 5 to explore their options.
Why This Matters for Investors
The lawsuit underscores a growing trend of legal challenges targeting financial institutions for alleged misstatements in an era of heightened regulatory scrutiny. For Ready Capital, the fallout includes not only the immediate stock price drop but also a leverage ratio climb to 3.8x—a worrying sign of deteriorating balance sheet health.
The case also highlights the risks of opaque accounting practices in the CRE sector, where non-performing loans can suddenly destabilize a company’s capital structure. Ready Capital’s $284 million in reserves alone suggests material undisclosed issues, which the lawsuit claims were known to executives but withheld from investors.
Conclusion: A Crucial Test for Transparency and Accountability
The Faruqi & Faruqi lawsuit against Ready Capital is emblematic of broader concerns about corporate transparency in financial reporting. With the stock down over 60% from its 52-week high of $12.85 (as of March 2025), investors are grappling with the consequences of what the complaint calls a “massive deception.”
The case’s outcome could set a precedent for how courts treat claims of selective disclosure in the REIT sector. For now, the May 5 lead plaintiff deadline looms large, urging investors to act swiftly. As the legal battle unfolds, Ready Capital’s ability to rebound will depend not only on resolving these claims but also on rebuilding trust through clearer financial disclosures—a tall order given the allegations.
In the end, this case serves as a stark reminder: in markets where information asymmetry thrives, investors must remain vigilant. For Ready Capital, the path to recovery may now run through the courtroom.
