Investors alleged Zillow gave shareholders an overly positive picture of its home flipping business. Zillow denied securities fraud and has signed a $212.5 million settlement that still needs court approval.
Zillow, the online real estate marketplace, announced it would close its home flipping business and take a $304 million write-down, Reuters reported. Most homes in its Zillow Offers inventory were worth less than Zillow paid, according to Reuters, and shareholders alleged company leaders had painted an overly positive picture of the business. In an October 28 SEC filing, Zillow said it signed a $212.5 million cash settlement of the shareholder class action on October 27, with about $48 million expected from insurance. The deal still needs court approval, and payment into escrow is due within 20 business days after preliminary approval.
Lawyers for Zillow denied the securities fraud accusations, Reuters reported. The settlement contains no admission of liability or wrongdoing by any defendant. It would resolve the claims against the defendants in *Jaeger v. Zillow Group*, the class action in the U.S. District Court for the Western District of Washington. Related shareholder derivative suits remain pending.
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Reuters traced the lawsuit to a 32% plunge in Zillow’s stock price over two days in November 2021. That decline began after news surfaced that most homes in the Zillow Offers inventory were worth less than the company paid and Zillow was looking to sell 7,000 homes, Reuters reported. Zillow then announced it would close the business, take the $304 million write-down and lay off 25% of its workforce.
Shareholders said they had bought Zillow stock at inflated prices because company leaders painted an overly positive picture of Zillow Offers. The proposed settlement would cover people and entities that acquired Zillow Class A common stock or Class C capital stock from August 5 through November 2, 2021, and were allegedly damaged, subject to the agreement’s exclusions and exceptions.
That sequence gives the dollar figures different jobs. The $304 million was the announced write-down tied to Zillow’s home flipping business. The $212.5 million is the cash amount Zillow has agreed to pay or cause to be paid to settle the shareholder class action. About $48 million of that proposed payment is expected from insurance. The first figure is the write-down Zillow announced when it said it would close Zillow Offers; the latter two describe the proposed settlement and its expected source of funds.
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Reuters reported that a little over three weeks before Zillow announced the settlement, the U.S. Supreme Court refused to hear Zillow’s appeal from a lower court ruling that allowed the case to proceed. Zillow’s SEC filing gives the next dated step: on October 27, the parties entered into a settlement agreement.
The proposed $212.5 million would go into an escrow fund after the Washington federal court preliminarily approves the deal. The fund would pay for notice and administration, plaintiffs’ attorneys’ fees and expenses approved by the court, and cash distributions to eligible class members. Those uses mean the headline settlement amount is the fund total, not a promised payment directly to shareholders.
Preliminary approval would start another sequence. Class members would receive notice and could object or request exclusion. The court would then hold a fairness hearing before deciding whether to grant final approval and enter judgment. If the settlement takes effect, members who have not validly opted out would release claims arising from the allegations or their stock purchases during the class period, as described in Zillow’s filing.
The defendants have a way to end the deal if exclusion requests reach a confidential threshold of purchased shares. That threshold is measured in shares, according to the SEC filing. It makes the response to class notice consequential to whether the proposed settlement proceeds. The filing also identifies court approval, objections, possible review of a final judgment, and the amount and timing of insurance proceeds among factors that could change the expected outcome.
**P&L translation:** for claims leaders, the insurance figure is the distinctive part of this shareholder case: Zillow expects approximately $48 million of the proposed payment to come from insurance proceeds, while its filing says the amount and timing may differ from that expectation. For litigation leaders, the remaining question is whether the signed agreement survives notice, exclusion requests and the court’s approval process.
Steve Berman, a lawyer for the shareholders, said he believed this was the largest securities settlement in the federal court district that includes Seattle, Reuters reported. His claim describes the deal’s scale, but the present status is narrower and concrete: Zillow has signed for $212.5 million, class notice would follow preliminary approval, and the related derivative suits remain pending. The next decision belongs to the Washington federal judge: preliminary approval would start the 20-business-day clock for the $212.5 million to reach escrow.
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