Verified Shareholder Derivative Complaint — Kevin Cote v. Ready Capital Corporation (D. Md.)
Summary
A verified shareholder derivative complaint brought by Kevin Cote on behalf of Ready Capital Corporation against its officers and directors Case No. 1:25-cv-02429-JRR, in the U.S. District Court for the District of Maryland, filed July 24, 2025 as Document 1. It alleges breaches of fiduciary duty, waste, unjust enrichment and violations of Sections 10(b) and 20(a) of the Exchange Act between August 8, 2024 and March 2, 2025. The complaint alleges that the defendants touted improving credit metrics until a March 3, 2025 press release reported a net loss of $1.80 per share for the fourth quarter and approximately $284 million in CECL and valuation allowances, after which the stock fell $1.86 per share. It also alleges the company overpaid by approximately $13.7 million in stock repurchases, and cites a pending securities class action, Case No. 1:25-cv-01883-PAE.
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“Verified Shareholder Derivative Complaint — Kevin Cote v. Ready Capital Corporation (D. Md.).”
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Case 1:25-cv-02429-JRR Document 1 Filed 07/24/25 Page 1 of 60
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
KEVIN COTE, Derivatively on Behalf of
READY CAPITAL CORPORATION, Case No.
Greenville, R.I. 02828
Plaintiff,
v. VERIFIED SHAREHOLDER
DERIVATIVE COMPLAINT
READY CAPITAL CORPORATION,
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
JURY TRIAL DEMANDED
Serve on:
THE CORPORATION TRUST
INCORPORATED
2405 York Road,
Suite 201
Lutherville Timonium, Maryland
21093-2264
and
THOMAS E. CAPASSE
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
ANDREW AHLBORN
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
JACK J. ROSS
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
Case 1:25-cv-02429-JRR Document 1 Filed 07/24/25 Page 2 of 60
MEREDITH MARSHALL
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
DOMINIQUE MIELLE
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
GILBERT NATHAN
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
J. MITCHELL REESE
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
and
TODD M. SINAI
c/o Ready Capital Corporation
1251 Avenue of the Americas, 50th Floor
New York, NY 10020
Defendants
VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
Plaintiff Kevin Cote (“Plaintiff”), by and through Plaintiff’s undersigned attorneys,
derivatively and on behalf of Nominal Defendant Ready Capital Corporation (“Ready Capital” or
Case 1:25-cv-02429-JRR Document 1 Filed 07/24/25 Page 3 of 60
the “Company”), submits this Verified Shareholder Derivative Complaint against the Company’s
Board of Directors (the “Board”) and certain of its executive officers, seeking to remedy the
Individual Defendants’ (defined below) breaches of fiduciary duties, gross mismanagement, waste
of corporate assets, abuse of control, unjust enrichment, and violations of federal law, including
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).
Plaintiff alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s
own acts, and information and belief as to all other matters, based upon, inter alia, the investigation
conducted by and through Plaintiff’s attorneys, which included, among other things, a review of
the Company’s publicly available documents, conference calls transcripts and public
announcements, United States Securities and Exchange Commission (“SEC”) filings, wire and
press releases published by and regarding Ready Capital, legal filings, news reports, securities
analysts’ reports, and other publicly available information. Plaintiff believes that substantial
evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for
discovery.
NATURE OF THE ACTION
1. This is a shareholder derivative action brought on behalf of Ready Capital to remedy
the Individual Defendants’ violations of state and federal law that occurred between August 8,
2024 and March 2, 2025, both dates inclusive (the “Relevant Period”), and caused substantial harm
to the Company.
2. Ready Capital is a real estate finance company that originates, acquires, finances,
and services lower-to-middle market (“LMM”) commercial real estate (“CRE”) loans, small
business administration (“SBA”) loans, residential mortgage loans, construction loans, and other
real estate-related investments.
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3. On August 8, 2024, Ready Capital announced “improving credit metrics” with
respect to the Company’s loan portfolio in a press release discussing its second quarter 2024
results.
4. Throughout the rest of the Relevant Period, the Individual Defendants touted the
Company’s financial success, representing that Ready Capital’s credit metrics continued to
improve and that several initiatives to derisk the Company’s CRE portfolio had been successful.
5. The truth emerged on March 3, 2025, when Ready Capital issued a press release
announcing disappointing financial results for the fourth quarter and full year 2024. Specifically, the
press release revealed a net loss of $1.80 per share in the fourth quarter of 2024 and a net loss of
$2.52 per share for the full year of 2024. The press release further reported that the Company
would take action to stabilize its balance sheet by fully reserving its non-performing loans in the
CRE portfolio, including taking on approximately $284 million in combined Current Expected
Credit Loss (“CECL”) and valuation allowances for 2024 in order to mark the Company’s non-
performing loans to current values.
6. On this news, the Company’s stock price fell $1.86 per share, or approximately
26.8%, from a closing price of $6.93 per share on March 2, 2025 to a closing price of $5.07 per
share on March 3, 2025, on unusually heavy trading volume.
7. The Individual Defendants breached their fiduciary duties by issuing, causing the
issuance of, and/or failing to correct the materially false and/or misleading statements and
omissions of material fact about the Company’s business, operations, and prospects. Specifically,
the Individual Defendants made and/or caused the Company to fail to disclose that, inter alia: (1)
Ready Capital’s CRE portfolio held significant non-performing loans that were not likely to be
collectible; (2) Ready Capital’s credit metrics were not stabilizing and its initiatives to derisk the
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CRE portfolio were not successful; (3) the non-performing loans hindered Ready Capital’s
financial performance such that Ready Capital would have to fully reserve the non-performing
loans to normalize its CRE portfolio; and (4) Ready Capital’s actual expected credit loss or
valuation allowances did not accurately reflect the impact of the non-performing loans. As a result
of the foregoing, the Company’s public statements regarding its business, operations, and
prospects were materially false and misleading at all relevant times.
8. Further, as a direct and proximate result of the Individual Defendants’ misconduct,
while the price of the Ready Capital’s common stock was artificially inflated due to the false and
misleading statements, the Company repurchased its own common stock at prices that were
artificially inflated, resulting in the Company overpaying for its own stock by approximately $13.7
million.
9. As a result of the Individual Defendants’ misconduct, a consolidated securities
fraud class action lawsuit is pending in the United States District Court for the Southern District
of New York (the “Securities Class Action”) against the Company, its Chief Executive Officer and
Chief Investment Officer, and its Chief Financial Officer, styled as In re Ready Capital Securities
Litigation, Case No. 1:25-cv-01883-PAE (S.D.N.Y). The Securities Class Action has exposed the
Company to massive class-wide liability and costs related to defending itself in those actions.
10. In light of the Individual Defendants’ breaches of fiduciary duties; the Company
directors’ collective engagement in fraud and misconduct; the substantial likelihood of the
directors’ liability in this derivative action; the officers’ and directors’ liability in the Securities
Class Action; and of their not being disinterested and/or independent directors, a majority of Ready
Capital’s Board cannot consider a demand to commence litigation against themselves on behalf of
Ready Capital with the requisite level of disinterestedness and independence.
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JURISDICTION AND VENUE
11. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and Section
27 of the Exchange Act because Plaintiff’s claims asserted raise a federal question under Section
10(b) of the Exchange Act (15 U.S.C. § 78j(b)) and SEC Rule 10b-5 promulgated thereunder (17
C.F.R. § 240.10b-5), Section 20(a) of the Exchange Act (15 U.S.C. §78t(a)), and Section 21D of
the Exchange Act (15 U.S.C. § 78u-4(f)).
12. Plaintiff’s claims also raise a federal question pertaining to the claims made in the
Securities Class Action based on violations of the Exchange Act.
13. This Court has supplemental jurisdiction over Plaintiff’s state law claims pursuant
to 28 U.S.C. § 1367(a).
14. This derivative action is not a collusive action to confer jurisdiction on a court of
the United States that it would not otherwise have.
15. Venue is proper in this District because the alleged misstatements, omissions, and
wrongs complained of herein occurred in this District, the Defendants have conducted business in
this District, and Defendants’ actions and activities have had an effect in this District.
PARTIES
16. Plaintiff is a current shareholder of Ready Capital. Plaintiff has continuously held
Ready Capital common stock at all relevant times.
17. Ready Capital is a Maryland corporation with its principal executive offices at 1251
Avenue of the Americas, 50th Floor, New York, NY 10020. Ready Capital’s common stock trades
on the New York Stock Exchange (“NYSE”) under the ticker symbol “RC.”
18. Defendant Thomas E. Capasse (“Capasse”) has served as the Company’s CEO
(“CEO”) and Chairman of the Board since October 2016 and as Chief Investment Officer (“CIO”)
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since November 2022. Defendant Capasse is also a co-founder and a manager of Waterfall Asset
Management, LLC (“Waterfall”), the Company’s external manager and advisor. Defendant Capasse
is named as a defendant in the Securities Class Action.
19. Defendant Andrew Ahlborn (“Ahlborn”) has served as the Company’s Chief
Financial Officer (“CFO”) since March 2019. From 2015 to 2019, Defendant Ahlborn served as
Controller of the Company. Defendant Ahlborn also joined Waterfall in 2010. Defendant Ahlborn
is named as a defendant in the Securities Class Action.
20. Defendant Jack J. Ross (“Ross”) has served as President and a Company director
since October 2016. Defendant Ross is also a co-founder and manager of Waterfall.
21. Defendant Meredith Marshall (“Marshall”) has served as a Company director since
December 2022. Defendant Marshall also serves as a member of the Compensation Committee and
the Nominating and Corporate Governance Committee.
22. Defendant Dominique Mielle (“Mielle”) has served as a Company director since
March 2021. Defendant Mielle also serves as the Chair of the Audit Committee and as a member
of the Compensation Committee.
23. Defendant Gilbert Nathan (“Nathan”) has served as a Company director since March
2019. Defendant Nathan also serves as a member of the Audit Committee and as a member of the
Nominating and Corporate Governance Committee.
24. Defendant J. Mitchell Reese (“Reese”) has served as a Company director since
October 2016 and as Lead Independent Director since April 2025. Defendant Reese also serves as
Chairman of the Nominating and Corporate Governance Committee and as a member of the Audit
Committee.
25. Defendant Todd M. Sinai (“Sinai”) has served as a Company director since October
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2016. Defendant Sinai also serves as the Chairman of the Compensation Committee and as a
member of the Nominating and Corporate Governance Committee.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
26. By reason of their positions as officers, directors, and/or fiduciaries of Ready
Capital and because of their ability to control the business and corporate affairs of Ready Capital,
the Individual Defendants owed Ready Capital and its shareholders fiduciary obligations of trust,
loyalty, good faith, and due care, and were and are required to use their utmost ability to control
and manage Ready Capital in a fair, just, honest, and equitable manner. The Individual Defendants
were and are required to act in furtherance of the best interests of Ready Capital and its
shareholders.
27. Each director and officer of the Company owes to Ready Capital and its
shareholders the fiduciary duty to exercise good faith and diligence in the administration of the
Company and in the use and preservation of its property and assets and the highest obligations of
fair dealing.
28. The Individual Defendants, because of their positions of control and authority as
directors and/or officers of Ready Capital, were able to and did, directly and/or indirectly, exercise
control over the wrongful acts complained of herein.
29. To discharge their duties, the officers and directors of Ready Capital were required
to exercise reasonable and prudent supervision over the management, policies, controls, and
operations of the Company.
30. Each Individual Defendant, by virtue of their position as a director and/or officer,
owed to the Company and to its shareholders the highest fiduciary duties of loyalty, good faith,
and the exercise of due care and diligence in the management and administration of the affairs of
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the Company, as well as in the use and preservation of its property and assets. The conduct of the
Individual Defendants complained of herein involves a knowing and culpable violation of their
obligations as directors and officers of Ready Capital, the absence of good faith on their part, or a
reckless disregard for their duties to the Company and its shareholders that the Individual
Defendants were aware or should have been aware posed a risk of serious injury to the Company.
The conduct of the Individual Defendants who were also officers and directors of the Company
has been ratified by the remaining Individual Defendants who collectively comprised a majority
of Ready Capital’s Board at all relevant times.
31. As senior executive officers and/or directors of a publicly-traded company whose
common stock was registered with the SEC pursuant to the Exchange Act and traded on the NYSE,
the Individual Defendants had a duty to prevent and not to effect the dissemination of inaccurate
and untruthful information with respect to the Company’s financial condition, performance,
growth, operations, financial statements, business, products, management, earnings, internal
controls, and present and future business prospects, including the dissemination of false
information regarding the Company’s business, prospects, and operations, and had a duty to cause
the Company to disclose in its regulatory filings with the SEC all those facts described in this
Complaint that it failed to disclose, so that the market price of the Company’s common stock would
be based upon truthful and accurate information. Further, they had a duty to ensure the Company
remained in compliance with all applicable laws.
32. To discharge their duties, the officers and directors of Ready Capital were required
to exercise reasonable and prudent supervision over the management, policies, practices, and
internal controls of the Company. By virtue of such duties, the officers and directors of Ready
Capital were required to, among other things:
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(a) ensure that the Company was operated in a diligent, honest, and prudent manner in
accordance with the laws and regulations of Maryland, New York, and the United States, and
pursuant to Ready Capital’s own Code of Business Conduct and Ethics;
(b) conduct the affairs of the Company in an efficient, business-like manner so as to
make it possible to provide the highest quality performance of its business, to avoid wasting the
Company’s assets, and to maximize the value of the Company’s stock;
(c) remain informed as to how Ready Capital conducted its operations, and, upon
receipt of notice or information of imprudent or unsound conditions or practices, to make
reasonable inquiry in connection therewith, and to take steps to correct such conditions or
practices;
(d) establish and maintain systematic and accurate records and reports of the business
and internal affairs of Ready Capital and procedures for the reporting of the business and internal
affairs to the Board and to periodically investigate, or cause independent investigation to be made
of, said reports and records;
(e) maintain and implement an adequate and functioning system of internal legal,
financial, and management controls, such that Ready Capital’s operations would comply with all
applicable laws and Ready Capital’s financial statements and regulatory filings filed with the SEC
and disseminated to the public and the Company’s shareholders would be accurate;
(f) exercise reasonable control and supervision over the public statements made by the
Company’s officers and employees and any other reports or information that the Company was
required by law to disseminate;
(g) refrain from unduly benefiting themselves and other Company insiders at the
expense of the Company; and
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(h) examine and evaluate any reports of examinations, audits, or other financial
information concerning the financial affairs of the Company and make full and accurate disclosure
of all material facts concerning, inter alia, each of the subjects and duties set forth above.
33. Each of the Individual Defendants further owed to Ready Capital and the
shareholders the duty of loyalty requiring that each favor Ready Capital’s interest and that of its
shareholders over their own while conducting the affairs of the Company and refrain from using
their position, influence, or knowledge of the affairs of the Company to gain personal advantage.
34. At all times relevant hereto, the Individual Defendants were the agents of each other
and of Ready Capital and were, at all times, acting within the course and scope of such agency.
35. Because of their advisory, executive, managerial, directorial, and controlling
positions with Ready Capital, each of the Individual Defendants had access to adverse, nonpublic
information about the Company.
36. The Individual Defendants, because of their positions of control and authority, were
able to and did, directly or indirectly, exercise control over the wrongful acts complained of herein,
as well as the contents of the various public statements issued by Ready Capital.
CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION
37. In committing the wrongful acts alleged herein, the Individual Defendants have
pursued, or joined in the pursuit of, a common course of conduct, and have acted in concert with
and conspired with one another in furtherance of their wrongdoing. The Individual Defendants
caused the Company to conceal the true facts as alleged herein. The Individual Defendants further
aided and abetted and/or assisted each other in breaching their respective duties.
38. The purpose and effect of the conspiracy, common enterprise, and/or common
course of conduct was, among other things, to: (i) facilitate and disguise the Individual Defendants’
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violations of law, including breaches of fiduciary duty, unjust enrichment, waste of corporate
assets, gross mismanagement, abuse of control, and violations of the Exchange Act; (ii) conceal
adverse information concerning the Company’s operations, financial condition, legal compliance,
future business prospects, and internal controls; and (iii) artificially inflate the Company’s stock
price.
39. The Individual Defendants accomplished their conspiracy, common enterprise,
and/or common course of conduct by causing the Company purposefully or recklessly to conceal
material facts, fail to correct such misrepresentations, and violate applicable laws. In furtherance
of this plan, conspiracy, and course of conduct, the Individual Defendants collectively and
individually took the actions set forth herein. Because the actions described herein occurred under
the authority of the Board, each of the Individual Defendants who is a director of Ready Capital
was a direct, necessary, and substantial participant in the conspiracy, common enterprise, and/or
common course of conduct complained of herein.
40. Each of the Individual Defendants aided and abetted and rendered substantial
assistance in the wrongs complained of herein. In taking such actions to substantially assist the
commission of the wrongdoing complained of herein, each of the Individual Defendants acted with
actual or constructive knowledge of the primary wrongdoing, either took direct part in, or
substantially assisted in the accomplishment of that wrongdoing, and was or should have been
aware of his or her overall contribution to and furtherance of the wrongdoing.
41. At all times relevant hereto, each of the Individual Defendants was the agent of
each of the other Individual Defendants and of Ready Capital and was at all times acting within
the course and scope of such agency.
READY CAPITAL’S CODE OF BUSINESS CONDUCT AND ETHICS
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42. Ready Capital’s Code of Business Conduct and Ethics (the “Code of Ethics”)
applies to “. . . all officers, directors and employees of the Company and its subsidiaries and
officers, directors and employees of Waterfall Asset Management, LLC (‘Waterfall’), the
Company’s external manager . . .”
43. Additionally, the Code of Ethics states that Ready Capital may “. . . on a case-by-
case basis, determine to treat certain affiliates or non-employees (e.g., consultants or service
providers)” as “Covered Persons” for purposes of the Code of Ethics.
44. The Code of Ethics states that Covered Persons must adhere to the following
conduct:
• Place the Company’s interests ahead of their own – Covered Persons must
serve in the Company’s best interests and avoid inappropriately benefiting
at the expense of the Company.
• Engage in personal investing that is in full compliance with this Code –
Covered Persons must review and abide by the Company’s Personal
Security Transaction Policy contained herein.
• Avoid taking advantage of your position – Covered Persons must not accept
investment opportunities, gifts or other gratuities from individuals seeking
to conduct business with the Company or Waterfall, or on behalf of an
advisory client of Waterfall, unless in compliance with the Gifts and
Entertainment Policy contained herein.
• Maintain full compliance with the Federal Securities Laws – Covered
Persons must abide by the Securities Act of 1933, as amended (the
“Securities Act”), the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), the Advisers Act, the Investment Company Act, and other
Federal Securities Laws, as pertinent.
45. In a section titled “Compliance with Applicable Laws,” the Code of Ethics states:
The Company is committed to conducting its business in strict compliance with all
applicable governmental, state and local laws, rules and regulations, including,
laws, rules and regulations related to securities, labor, employment and workplace
safety matters. As a public reporting company with its stock trading on the New
York Stock Exchange (the “NYSE”), the Company is also subject to regulation by
the SEC and to the applicable listing standards of the NYSE. All Covered Persons
are expected at all times to conduct their activities on behalf of the Company in
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accordance with this principle. Any violation of applicable laws, rules and
regulations by any Covered Person should be reported to the Chief Compliance
Officer. In addition to reporting such violations in accordance with the procedures
set forth in this Code, Covered Persons may also report any potential suspected
violations of law or regulations governing the Company’s operations in accordance
with the procedures set forth in the Company’s “Whistleblowing Procedures”
policy. Covered Persons should seek guidance whenever they are in doubt as to the
applicability of any law, rule or regulation or regarding any contemplated course of
action.
46. In a section titled “Guiding Principles & Standards of Conduct,” the Code of Ethics
states:
All Covered Persons will act with competence, dignity and integrity, in an ethical
manner, when dealing with the public, prospects, third-party service providers and
each other. The following set of principles frame the professional and ethical
conduct that the Company expects from its Covered Persons:
• Act with integrity, competence, diligence, respect, and in an ethical manner
with the public, service providers, third parties and other Covered Persons;
• Place the integrity of the Company and the interests of the Company above
one’s own personal interests;
• Adhere to the fundamental standard that you should not take inappropriate
advantage of your position;
• Avoid any actual or potential material conflict of interest;
• Conduct all personal securities transactions in a manner consistent with this
policy;
• Use reasonable care and exercise independent professional judgment when
conducting investment analysis, making investment recommendations,
taking investment actions, and engaging in other professional activities;
• Practice and encourage others to practice in a professional and ethical
manner that will reflect favorably on you and the Company;
• Promote the integrity of, and uphold the rules governing, the Company’s
business;
• Maintain and improve your professional competence and strive to maintain
and improve the competence of other investment professionals; and
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• Comply with applicable provisions of the U.S. securities laws.
The Company considers it be a violation of this Code for any Covered
Person, directly or indirectly, to:
• Employ any device, scheme, or artifice to defraud the Company;
• Make any untrue statement of material fact to the Company or omit to
state a material fact necessary in order to make the statements to the
Company, in light of the circumstances under which they are made, not
misleading;
• Engage in any act, practice or course of business that operates or would
operate as a fraud of deceit on the Company; or
• Engage in any manipulative practice with respect to the Company
47. In a section titled “Diversion of Company Business or Investment Opportunity,”
the Code of Ethics states:
Covered Persons must exercise great care any time their personal interests might
conflict with those of the Company. The appearance of a conflict often can be as
damaging as an actual conflict. Prompt and full disclosure is always the correct
first step towards identifying and resolving any potential conflict of interest.
Directors of the Company are expected to make appropriate disclosures to the
Board and to take appropriate steps to recuse themselves from Board decisions
with respect to transactions or other matters involving the Company as to which
they are interested parties or with respect to which a real or apparent conflict of
interest exists.
No Covered Person may acquire, or receive personal gain or profit from, any
business opportunity that comes to his or her attention as a result of his or her
association with the Company and in which he or she knows the Company might
be expected to participate or have an interest, without disclosing in writing all
necessary facts to the Chief Compliance Officer, offering the particular
opportunity to the Company, and obtaining written authorization to participate
from the Chief Compliance Officer.
Any personal or family interest of a Covered Person in any Company business
activity or transaction of the Company must be immediately disclosed to the Chief
Compliance Officer. For example, if a Covered Person becomes aware that a
transaction being considered or undertaken by the Company may benefit, either
directly or indirectly, a Covered Person or an immediate family member thereof,
the Covered Person must immediately disclose this possibility to the Chief
Compliance Officer.
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48. In a section titled “Protection of the Company’s Name,” the Code of Ethics states:
Covered Persons should at all times be aware that the Company’s name, reputation
and credibility are valuable assets and must be safeguarded from any potential
misuse. Care should be exercised to avoid the unauthorized use of the Company’s
name in any manner that could be misinterpreted to indicate a relationship between
the Company and any other entity or activity.
49. In a section titled “Dealings with Stockholders,” the Code of Ethics states the
following:
The Company shall respect the rights of the Company’s stockholders, including the
right to obtain adequate access to information which the Company is required by
law to disclose. Disclosure about the Company’s affairs, operations and financial
condition shall be made in accordance with the Public Disclosure section of this
Code.
50. In a section titled “Accounting Matters,” the Code of Ethics states:
Internal Accounting Controls
The Company places the highest priority on “best practices” disclosure. The
Company’s annual reports, quarterly reports and press releases, and other public
disclosure of the Company’s financial results, reflect how seriously it takes this
responsibility.
Covered Persons share this responsibility with the Company and the Board and
must help maintain the integrity of the Company’s financial records. The Company
trusts that Covered Persons understand that protecting the integrity of its
information gathering, information quality, internal control systems and public
disclosures is one of the highest priorities it has as a firm.
Any Covered Persons who observes conduct that causes them to question the
integrity of the Company’s internal accounting controls and/or disclosure, or if they
otherwise have reason to doubt the accuracy of Company’s financial reporting, it is
imperative that such concerns are brought to the Company’s attention immediately.
In accordance with the Company’s “Whistleblowing Procedures” policy, Covered
Persons should promptly report any concerns via the Company’s Compliance
Hotline, the Company’s Compliance e-mail or to any member of the Audit
Committee of the Board. If any Covered Person is not comfortable providing their
name, they may report anonymously. Any kind of retaliation against Covered
Persons for raising these issues is strictly prohibited and will not be tolerated.
Improper Influence on the Conduct of Audits
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It is unlawful for Covered Persons, or any other person acting under the direction
of any such persons, to take any action to fraudulently influence, coerce,
manipulate, or mislead the independent accountants engaged in the performance of
an audit of the Company’s financial statements for the purpose of rendering such
financial statements materially misleading. Any such action is a violation of this
Code. Any Covered Persons who engages in such conduct will be subject to
sanctions under this Code, in addition to potential civil and criminal liability. In
accordance with the Company’s “Whistleblowing Procedures” policy, Covered
Persons should promptly report any concerns via the Company’s Compliance
Hotline, the Company’s Compliance e-mail or to any member of the Audit
Committee of the Board.
51. In a section titled “Reporting Violations and Remedial Actions,” the Code of Ethics
states, in relevant part:
The Company takes the potential for conflicts of interest and other potential
violations of this Code very seriously. As such, the Company requires its Covered
Persons to promptly report any violations of this Code to the Chief Compliance
Officer. The Chief Compliance Officer shall promptly provide a summary of any
reported Code violations to the Audit Committee of the Board. Alternatively,
Covered Persons may promptly report any violations of this Code in accordance
with the procedures set forth in the Company’s “Whistleblowing Procedures”
policy.
If any violation of the Company’s Personal Security Transaction Policy is
determined to have occurred, the Chief Compliance Officer may impose sanctions
and take such other actions, including, without limitation, requiring that the trades
in question be reversed, requiring the disgorgement of profits or gifts, issuing a
letter of caution or warning, issuing a suspension of personal trading rights or
suspension of employment (with or without compensation), imposing a fine,
making a civil referral to the SEC, making a criminal referral, and/or terminating
employment for cause or any combination of the foregoing. All sanctions and other
actions taken shall be in accordance with applicable employment laws and
regulations. Any profits or gifts forfeited shall be paid to the Company, the
applicable client(s) of Waterfall, if any, or given to a charity, as the Chief
Compliance Officer shall determine is appropriate.
No Covered Person shall participate in a determination of whether he or she has
committed a violation of this Code or in the imposition of any sanction against
himself or herself.
Nothing in this policy prohibits employees from reporting possible violations of
federal law or regulation to any government official or agency, or reporting on other
matters that are protected under the whistleblower provisions of federal law or
regulation. Employees do not need prior authorization from the Company to make
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a report to a government official or agency and are not required to notify the
Company upon making any such report.
The Company will not seek to hold an employee liable under any federal or state
trade secret law for the disclosure of a trade secret that is made in confidence to a
federal, state or local government official, either directly or indirectly, or to an
attorney, and solely for the purpose of reporting or investigating a suspected
violation of law, or that is made in a complaint or other document that is filed under
seal in a lawsuit or other proceeding. An individual who files a lawsuit for
retaliation by the Company for reporting a suspected violation of law may disclose
the trade secret to his or her attorney and use the trade secret information in the
court proceeding if the individual files any document containing the trade secret
under seal and does not disclose the trade secret, except pursuant to court order.
52. In a section titled “Public Disclosure,” the Code of Ethics states:
The Company is committed to providing full, fair, accurate, timely and
understandable disclosure in the current reports, periodic reports and other
information it files with or submits to the SEC and in other public communications,
such as press releases, earnings conference calls and industry conferences, made by
the Company or on the Company’s behalf. In meeting such standards for disclosure,
the Company’s officers and directors shall at all times strive to comply with the
Company’s disclosure obligations and, as necessary, appropriately consider and
balance the need or desirability for confidentiality with respect to non-public
negotiations or other business developments.
The Company’s Chief Executive Officer and Chief Financial Officer are
responsible for establishing effective disclosure controls and procedures and
internal control over financial reporting within the meaning of applicable SEC rules
and regulations. The Company expects the Chief Executive Officer and the Chief
Financial Officer to take a leadership role in implementing such controls and
procedures and to position the Company to comply fully with its disclosure
obligations within the timeframe required under applicable SEC rules and
regulations. No Covered Person should interfere with, hinder or obstruct the
Company’s efforts to meeting the standards for public disclosure set forth above.
The Company’s Chief Executive Officer and Chief Financial Officer are the
Company’s principal spokespersons. If someone outside the Company asks you
questions or requests information regarding the Company, its business or financial
results, do not attempt to answer. All requests for information - from reporters,
securities analysts, stockholders or the general public - should be referred to either
of these spokespersons, who will handle the request or delegate it to an appropriate
person
53. In a section titled “Books and Records,” the Code of Ethics states:
The Company’s responsibilities to its stockholders and the investing public require
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that all of the Company’s books, records, accounts and financial statements be
maintained in reasonable detail, appropriately reflect the Company’s transactions
and conform to applicable legal requirements, the Company’s system of internal
controls and accounting principles generally accepted in the United States
(“GAAP”). The Company relies on the accuracy and completeness of its business
records to (i) provide full, fair, accurate, timely and understandable disclosure in
the current reports, periodic reports and other information it files with or submits
to the SEC and in other public communications, such as press releases, earnings
conference calls and industry conferences, made by the Company or on the
Company’s behalf, (ii) make management decisions and (iii) analyze its operations.
The accuracy of such records is essential for continued, long-term business success.
No false, misleading or artificial entries may be made by any Covered Person in
the books and records of the Company. All Covered Persons with supervisory
responsibility shall establish and implement appropriate internal accounting
controls over all areas of their responsibility to ensure the safeguarding of the
Company’s assets and the accuracy of its financial records and reports. The
Company has adopted controls in accordance with internal needs and the
requirements of applicable laws and regulations. These established accounting
practices and procedures must be followed to assure the complete and accurate
recording of all transactions. All Covered Persons, within their areas of
responsibility, are expected to adhere to these procedures, as directed by the Chief
Financial Officer.
Any accounting adjustments that materially depart from GAAP must be approved
by the Company’s Chief Financial Officer. In addition, all material off-balance-
sheet transactions, arrangements and obligations, contingent or otherwise, and other
relationships of the Company with unconsolidated entities or other persons that
may have material current or future effects on the financial condition, changes in
financial condition, results of operations, liquidity, capital expenditures, capital
resources or significant components of revenues or expenses must be disclosed to
the Company’s Chief Financial Officer.
54. In a section titled “Waivers,” the Code of Ethics states:
Any waiver of this Code for executive officers or directors of the Company may be
made only by the Board, or by a committee of the Board specifically authorized for
this purpose, and must be promptly disclosed to the Company’s stockholders as
required by law or regulation of the SEC and the rules of the NYSE. Waivers of this
Code for Covered Persons other than executive officers or directors of the Company
may be made by the Chief Executive Officer or President of the Company, but only
upon such Covered Persons making full disclosure in advance of the transaction in
question. The Company shall maintain a record of any waivers granted to Covered
Persons other than executive officers or directors of the Company and a summary
of such waivers shall promptly be provided to the Audit Committee of the Board.
This Code may be amended or modified at any time by the Board.
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READY CAPITAL’S AUDIT COMMITTEE CHARTER
55. Ready Capital’s charter for the Audit Committee (the “Audit Committee Charter”)
states the following with respect to the purpose of the Audit Committee:
The principal purpose of the Audit Committee (the “Committee”) is to assist the
Board of Directors (the “Board”) of Ready Capital Corporation (formerly known
as Sutherland Asset Management Corporation) (the “Company”) in fulfilling its
responsibilities to the stockholders, potential stockholders and investment
community relating to the corporate accounting and reporting practices of the
Company and its subsidiaries, the quality and integrity of the Company’s
consolidated financial statements, the Company’s compliance with applicable legal
and regulatory requirements, the performance, qualifications and independence of
the Company’s external auditors, and the performance of the Company’s internal
audit function, controls and procedures.
In discharging its oversight role, the Committee is granted the authority to adopt
policies and procedures to ensure that the accounting and reporting practices of the
Company are of the highest quality and integrity, including the authority to
investigate any matter brought to its attention, with full access to all books, records,
facilities and personnel of the Company, and the authority to engage independent
counsel and other advisers as it determines necessary to carry out its duties.
It shall also be the responsibility of the Committee to maintain free and open means
of communication among the Board and the Company’s external auditors, or
internal auditors and personnel of the Company or its external manager, Waterfall
Asset Management, LLC, a Delaware limited liability company (the “Manager”).
Through these lines of communication, the Committee shall monitor any issues or
areas that fall within the scope of its duties, purpose or responsibilities that require
special attention. The Company’s external auditors are ultimately accountable to
the Committee and the Board.
56. In a section titled “Responsibilities and Duties,” the Audit Committee Charter states
that the Audit Committee has the following responsibilities and duties, among others:
A. Financial and Related Reporting
1. Prior to the filing by the Company of a Quarterly Report on Form 10-Q (the
“Form 10-Q”), the Committee shall approve such filing. In connection therewith,
the Committee shall review with the Company’s management and external auditors,
the interim financial information to be included in the Form 10-Q and the matters
described in the applicable standards, as such standards may be adopted and
amended from time to time, of the Public Company Accounting Oversight Board
(the “PCAOB”). In addition, in connection with the Committee’s review of the
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Form 10-Q when applicable, the Committee shall review any matters of
significance, including significant adjustments, management judgments and
accounting estimates, significant reserves and/or accruals, significant new
accounting principles, disagreements between management and the external
auditors and their effect, if any, on the Company’s consolidated financial statements
and recent or proposed applicable requirements of the SEC, the Financial
Accounting Standards Board (the “FASB”) or other similar governing bodies, and
when applicable the disclosure set forth under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the Form 10-Q.
2. The Committee shall, prior to each filing by the Company of an Annual
Report on Form 10-K (the “Form 10-K”) with the SEC, review with the Company’s
management and external auditors, and approve, the audited financial statements to
be included in the Form 10-K and in the Company’s annual report to stockholders
(the “Annual Report”), review the form of audit opinion to be issued by the auditors
on the financial statements and the disclosure under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and review and
consider the matters described in the applicable standards, as such standards may
be adopted and amended from time to time, of the PCAOB. In connection
therewith, the Committee shall review significant adjustments, management
judgments and accounting estimates, significant reserves and/or accruals,
significant new accounting principles, critical audit matters, disagreements between
management and the external auditors and their effect, if any, on the Company’s
consolidated financial statements and recent or proposed applicable requirements
of the SEC, the FASB or other similar governing bodies, and the disclosure set forth
under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in the Form 10-K. Following such review, the Committee shall
recommend to the Board whether the audited financial statements should be
included in the Annual Report or the Form 10-K. Prior to the filing with the SEC
of the Annual Report or the Form 10-K, the Board shall approve such filing.
3. The Committee shall meet with the Company’s Chief Executive Officer
and/or any other officer of the Company responsible for certifying the Company’s
Form 10-K or Form 10-Qs filed with the SEC, prior to any such certification, and
review with such officers their disclosures relating to (a) all significant deficiencies
in the design or operation of internal controls which could adversely affect the
Company’s ability to record, process, summarize and report financial data and the
identification of any material weakness in internal controls and (b) any fraud,
whether or not material, that involves the Company’s management or other
employees who have a significant role relating to the Company’s internal controls.
4. In connection with its review of each Form 10-Q and Form 10-K and prior
to issuance of any earnings press release by the Company, the Committee shall
review with the Company’s management and external auditors the consolidated
statements of operations, earnings guidance and other financial information to be
included in such earnings press release. Prior to issuance of any release of financial
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information or earnings guidance to analysts or rating agencies, the Committee
shall review with the Company’s management and external auditors the financial
information or earnings guidance to be included in such release to be provided to
analysts or rating agencies. Each member of the Committee shall have the
opportunity to comment on such earnings press release, release of financial
information or earnings guidance and/or arrange a conference call with the
Company’s management with respect to such release.
5. The Committee shall annually issue a written report to the Board, a copy of
which shall be included in the Company’s proxy statement related to the annual
meeting of stockholders, stating whether the Committee has (a) reviewed and
discussed the audited financial statements with the Company’s management, (b)
discussed with the Company’s external auditors the matters required to be discussed
by the applicable standards adopted by the PCAOB and SEC, as such standards
may be adopted and amended from time to time, (c) received from the Company’s
external auditors written disclosures and the letter regarding such auditors’
independence required by applicable requirements of the PCAOB and discussed
with such auditors their independence, (d) recommended to the Board that the
audited financial statements of the Company be included in the Annual Report and
the Form 10-K and (e) such other information as may be required, from time to
time, by the rules and/or regulations of the NYSE, the SEC, the FASB or other
similar governing bodies.
6. The Committee shall periodically discuss with the Company’s external
auditors, such auditors’ judgments about the quality, not just the
acceptability, of the Company’s accounting principles as applied in its
consolidated financial statements. The discussion should include such issues
as the clarity of the Company’s financial disclosures, the degree of aggressiveness
or conservatism of the Company’s accounting principles and the underlying
estimates and other significant decisions made by the Company’s management
in preparing the financial disclosures.
7. The Committee shall obtain and review, on an annual basis, a report
prepared by the Company’s management and/or external auditors setting forth all
significant financial reporting issues and judgments made in connection with the
preparation of the Company’s financial statements, including an analysis of the
effects on the financial statements of the Company of any alternative generally
accepted accounting principle (“GAAP”) methods adopted by the Company, any
regulatory and/or accounting initiatives and any off-balance sheet structures and all
critical accounting policies and practices the Company uses or expects to use.
B. Controls and Compliance
1. The Committee shall periodically review with the Company’s management
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and external auditors, and internal auditors of the Company or its Manager (a) the
adequacy and effectiveness of the Company’s system of internal accounting
controls and procedures, (b) any recommendations of such external auditors and/or
internal auditors of the Company or its Manager with respect to any material
weaknesses in the Company’s system of internal controls, (c) any material matters
or problems with respect to accounting, records, procedures or operations of the
Company which have not been resolved to such external and/or internal auditors’
satisfaction after having been brought to the attention of management, (d) any
material matters or problems with respect to the safeguarding of the Company’s
assets and limitations on authority of the Company’s management relating to,
among other things, investments, borrowings and derivative instruments, (e) any
“management” or “internal control” letter issued, or proposed to be issued, by the
Company’s external auditors and all other material written communications
between the external auditors and the management of the Company and (f) the work
product for the testing of internal accounting controls and procedures. Such review
should also consider the impact of the adequacy and effectiveness of the Company’s
system of internal accounting controls on the Company’s financial reporting on
both an annual and quarterly basis.
2. The Committee shall discuss and review policies with respect to risk
assessment and risk management, including, but not limited to, (a) guidelines and
policies to govern the process by which risk assessment and risk management is
undertaken by the Company and its management, (b) the adequacy of the
Company’s insurance coverage, (c) any uninsured or commercially uninsurable
risks, (d) the Company’s interest rate risk management, (e) the Company’s counter-
party and credit risks, (f) the Company’s capital availability and refinancing risks
and (g) the Company’s information security program, including the management of
risks relating to data security, cybersecurity and privacy.
3. The Committee shall review with the Company’s management and tax
advisors the status of all tax returns, including open years and potential disputes.
The Committee shall review with the Company’s external auditors the adequacy of
tax reserves included in the Company’s consolidated financial statements.
4. On at least an annual basis, the Committee shall review with legal counsel
to the Company or its Manager, (a) any legal or regulatory matters that could have
a significant impact on the Company’s financial statements, (b) the Company’s
compliance with applicable laws and regulations and (c) inquiries received from
regulators or governmental agencies.
5. The Committee shall review the status of significant litigation with legal
counsel to the Company or its Manager and external auditors, if appropriate, and
whether reserves, if any, in connection with actual and/or potential litigation are
appropriate.
6. The Committee shall monitor and review the Company’s compliance with
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any applicable SEC and NYSE rules and regulations relating to, among other
things, the Company’s corporate accounting and reporting practices, the quality and
integrity of the Company’s consolidated financial statements, the performance,
qualifications and independence of the Company’s external auditors and the
performance of the Company’s internal audit function.
C. Internal Audit
1. To the extent applicable, the Committee shall review and approve the
function of the internal audit department of the Company or its Manager, its
staffing, compensation, budget, responsibilities, organization, activities,
independence and authority of its reporting obligations, as well as the qualifications
of its personnel. The Committee shall, on a regular basis, review the Company’s
internal audit charter, if any, and compliance by the Company’s or the Manager’s,
as applicable, internal audit department with applicable standards of the Institute of
Internal Auditors. The Committee shall also review the appointment, compensation
and replacement of the Company’s third-party internal auditors or, if applicable,
senior internal auditing executive and the coordination of such activities with the
Company’s external auditors.
2. The Company’s third-party internal auditors, which may include the
Manager, or, if applicable, the senior internal auditing executive shall report
directly to the Committee. The Committee shall meet regularly, but in no event less
than once every six months, with the internal auditors of the Company or its
Manager in executive sessions without the Company’s management present.
D. External Audit
1. The Committee shall engage and terminate (subject to, if applicable,
stockholder ratification) the external auditors to be used to audit the consolidated
financial statements of the Company.
2. The Committee shall review and pre-approve the engagement fees and the
terms of all auditing and non-auditing services to be provided by the Company’s
external auditors and evaluate the effect thereof on the independence of the external
auditors. The Committee shall also review and evaluate the scope of all non-
auditing services to be provided by the Company’s external auditors in order to
confirm that such services are permitted by any applicable rules and/or regulations
of the NYSE, the SEC, FASB or other similar governing bodies. As necessary, the
Committee shall consult with the Company’s management regarding the
engagement fees or terms of any such auditing or non-auditing services.
3. The Committee shall, at least annually, evaluate the Company’s external
auditors’ qualifications, performance and independence and present a written report
to the Board of its conclusions with respect to such evaluation. In connection with
this evaluation, the external auditors shall provide a written annual report to the
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Committee describing: (a) such external auditors’ internal quality control
procedures; (b) any material issues raised by the most recent internal quality-control
review, or peer review, of such external auditors or by any inquiry or investigation
by government or professional authorities within the preceding five years,
respecting one or more independent audits carried out by such external auditors,
and any steps taken to deal with any such issues; and (c) in order to assess such
external auditors’ independence, all relationships between such external auditors
and the Company. The Committee shall consult with the Company’s
management, its external auditors and/or personnel responsible for its internal audit
function, as necessary, regarding this evaluation.
4. The Committee shall review and evaluate the qualifications, performance
and independence of the lead partner of the external auditors, ensure that neither
the lead partner nor the concurring partner of the external auditors serves,
respectively, in that capacity for more than five years (or such other period as may
be prescribed by rules and/or regulations of the NYSE, the SEC, the FASB or other
similar governing bodies) and present its conclusions with respect to the
independent auditors, including whether the audit firm itself should be changed
periodically, to the Board.
5. The Committee shall meet with the Company’s management and external
auditors prior to commencement of the annual audit by such external auditors for
the purpose of reviewing the scope and audit procedures of such audit, including
special audit risk areas and materiality. The Committee shall also meet with the
Company’s external auditors subsequent to completion of that audit for the purpose
of reviewing the results.
6. The Committee shall obtain and review any written reports issued by the
Company’s external auditors regarding all critical accounting policies and practices
the Company uses or expects to use, all alternative treatments of financial
information within GAAP that have been discussed with the Company’s
management, the ramifications of the use of such alternative disclosures and
treatments and the treatment preferred by the external auditors.
7. The Committee shall meet regularly, but in no event less than once every
six months, with the Company’s external auditors in executive sessions without the
Company’s management present. Among the items to be discussed at these
meetings are the auditors’ evaluation of the Company’s financial, accounting and
the internal auditing personnel of the Company or its Manager, as applicable, and
the cooperation that the auditors received during the course of the audit, including
any audit problems or difficulties, together with the responses of the Company’s
management thereto, any restrictions on the scope of such external auditors’
activities and any significant disagreements with the Company’s management. If
applicable, such review may also include any accounting adjustments that were
noted or proposed by such auditors but were “passed” (including similar
adjustments that were passed because individually they were not material), any
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communications between the audit team and the audit firm’s national office
respecting auditing or accounting issues presented by the engagement, any
“management” or “internal control” letter issued, or proposed to be issued, by such
auditors to the Company and all other material written communications between
the external auditors and the management of the Company.
***
E. Other Committee Activities
1. The Committee shall report to the Board on a regular basis.
2. The Committee shall serve as access for the Company’s management,
external auditors and internal auditors to the Board with respect to all matters within
the scope of the Committee’s duties.
3. In accordance with any applicable rules and/or regulations of the NYSE, the
SEC, the FASB or other similar governing bodies, the Committee shall set clear
policies for the Company’s hiring of employees or former employees of the
Company’s external auditors. In addition, the Committee shall also conduct exit
interviews with departing executive officers in order to evaluate the Company’s
corporate accounting and reporting practices.
4. The Committee shall establish, review and update periodically an
orientation and training program for new Committee members, based upon the New
Member Orientation Guidelines attached hereto as Exhibit A, and ensure
continuing education and training for current Committee members.
5. The Committee shall conduct an annual evaluation of its own performance,
including the performance of individual members, and confirm annually that all of
the Committee’s responsibilities set forth in this Charter have been performed.
6. The Committee shall annually review and assess this Charter and
recommend any proposed changes to the Board for approval. This Charter may be
amended by the recommendation of the Committee and the approval of the
independent members of the Board. All amendments will be reported to the Board.
7. Members of the Committee shall assist the Chairperson’s review and
consideration of any related-party transactions presented to the Chairperson
pursuant to the Company’s related party transaction policies and procedures.
8. The Committee shall periodically review the Company’s “Code of Conduct
and Ethics” and suggest any updates to the Board.
9. The Committee shall oversee the Company’s program to monitor
compliance with the Company’s “Code of Conduct and Ethics” and meet
periodically with the Company’s Chief Compliance Officer to discuss compliance
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with the Code of Conduct and Ethics.
10. When applicable the Committee shall review and retain a log of all matters
reported to the Committee pursuant to the Company’s “Whistleblowing
Procedures” and “Code of Conduct and Ethics”, which the Committee adopted in
accordance with Section IV hereof.
11. The Committee shall review and pre-approve any fees to be paid to any
accounting advisors or consultants employed by the Company in connection with
the Company’s accounting, tax and auditing services.
SUBSTANTIVE ALLEGATIONS
Background
57. Ready Capital is a real estate finance company that originates, acquires, finances,
and services a variety of real estate-related investments including, but not limited to, LMM CRE
loans and small business administration loans.
58. Ready Capital’s loans are generally used by businesses to purchase real estate for
use in their operations or by investors seeking to acquire a wide range of property types, including
multi-family, office, retail, mixed use or warehouse properties.
59. Ready Capital’s LMM CRE and small business lending segments comprise
approximately 87.9% and 12.1%, respectively, of its total loan portfolio.
60. The Company’s LMM CRE loans range in original principal amounts and are
generally between $500,000 and $40 million.
61. The Company originates LMM loans across the full life-cycle of an LMM property,
including construction, bridge, stabilized and agency loan origination channels through its wholly-
owned subsidiary, ReadyCap Commercial.
62. In the fourth quarter of 2023, Ready Capital’s Board approved a plan to
strategically shift the Company’s core focus to LMM CRE loans and government backed small
business loans.
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Materially False and Misleading Statements
63. In the aftermarket hours of August 7, 2024, the day prior to the start of the Relevant
Period, Ready Capital issued a press release announcing its financial results for the second quarter
of 2024 (the “2Q24 Press Release”).
64. The 2Q24 Press Release discussed the Company’s second quarter financial results,
including its purported “net book value of $12.97 per share,” CECL reserve, and valuation
allowance activity. In relevant part, the 2Q24 Press Release stated:
Second Quarter Highlights
***
• Net book value of $12.97 per share of common stock as of June 30, 2024
***
The table below reconciles Net Income computed in accordance with U.S. GAAP
to Distributable Earnings.
65. In the 2Q24 Press Release, Defendant Capasse stated that Ready Capital’s financial
results were “reflective of our cumulative efforts to cycle out of underperforming assets and into
market yielding investments,” and that “[t]hese efforts, along with improving credit metrics
across the loan portfolio . . . position the Company to improve earnings moving into year end.” 1
1
All emphasis added, unless otherwise noted.
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66. Also in the aftermarket hours of August 7, 2024, Ready Capital published
supplemental financial information about its second quarter financial results which discussed,
among other things, the Company’s alleged net book value as $12.97 per common share and “[t]otal
leverage of 3.5x and recourse leverage ratio of 1.0x.”
67. On August 8, 2024, the Company hosted an earnings call to discuss its financial
results for the second quarter of 2024 (the “2Q24 Earnings Call”).
68. During the 2Q24 Earnings Call, Defendant Capasse stated that Ready Capital had
“successfully executed several initiatives,” including “active asset management” and “reallocation
of low-yield assets” which “better position[ed] the company for earnings growth[.]”
69. Defendant Capasse further stated, during the 2Q24 Earnings Call, that “all credit
metrics across our $7.9 billion originated CRE loan book improved quarter-over-quarter.”
70. Defendant Capasse likewise stated, on the 2Q24 Earnings Call, that Ready Capital’s
M&A portfolio, assets acquired in prior mergers and acquisitions, “totaled $1.1 billion across 81
assets with improving credit performance.”
71. During the 2Q24 Earnings Call, Defendant Capasse stated, with respect to the
Company’s “overall CRE portfolio,” that Ready Capital’s “recent asset management activities
has further derisked our portfolio.”
72. Defendant Capasse also stated, during the 2Q24 Earnings Call, that “the recent rate
rally is a green shoot” for Ready Capital’s business and that “the tides are turning in the CRE
cycle with green shoots in the form of rate declines, and in multifamily, peaking deliveries and
improving transaction volume.”
73. During the question-and-answer segment of the 2Q24 Earnings Call, an analyst
asked: “[a]s you think about the different drivers of the earnings ramp, where is the biggest risk in
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executing that strategy? . . . Is it credit issues in the existing portfolio?”
74. In response, Defendant Capasse cited “negative migration” – a decline in credit
qualify or performance of existing loans – as the “big risk” in the Company’s multifamily CRE
loan book but assured that negative migration was “a low risk” because of the “underlying
fundamentals,” such as the level of demand and favorable renting costs versus buying costs since
the Company is “in the affordable segment.”
75. On August 9, 2024, Ready Capital reported its financial results for the second
quarter of 2024 in its quarterly report on Form 10-Q with the SEC (the “2Q24 10-Q”).
76. The 2Q24 10-Q included a section titled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” which reported that Ready Capital’s
“allowance for credit losses” “are reviewed quarterly considering credit quality indicators,
including probable . . . losses[.]”
77. The 2Q24 10-Q further stated that the Company “estimate[s] the CECL expected
credit losses for our loan portfolio at the individual loan level,” which purportedly included “key
loan-specific inputs” and “a macro-economic forecast.”
78. On November 7, 2024, Ready Capital issued a press release regarding its financial
results for the third quarter of 2024 (the “3Q24 Press Release”).
79. The 3Q24 Press Release discussed the Company’s third quarter financial results,
including its purported “net book value of $12.97 per share,” CECL reserve, and valuation
allowance activity. Specifically, the 3Q24 Press Release stated, in relevant part:
Third Quarter Highlights
• Lower-to-Middle Market originations of $246 million
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• Record Small Business Lending loan originations of $440 million,
including $355 million of Small Business Administration 7(a) loans
• Net book value of $12.59 per share of common stock as of September 30,
2024
• Declared and paid dividend of $0.25 per share
• Strengthened the Small Business Lending platform with the acquisition of
Funding Circle USA, Inc.
80. In the 3Q24 Press Release, Defendant Capasse was quoted as stating that the
Company’s “third quarter performance demonstrates our diligent efforts to reposition
underperforming loans into market yielding investments,” and that with “an improving
economic environment,” Ready Capital “continue[d] to make significant progress toward our
long-term targets that are marked by higher levels of sustained returns.”
81. Also on November 7, 2024, Ready Capital published supplemental financial
information regarding its financial results for the third quarter of 2024, which discussed, among
other things, the Company’s alleged net book value as $12.59 per share and “[t]otal leverage of
3.3x and recourse leverage ratio of 1.0x.”
82. On November 8, 2024, Ready Capital hosted an earnings call regarding its financial
results for the third quarter of 2024 (the “3Q24 Earnings Call”).
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83. During the 3Q24 Earnings Call, Defendant Capasse stated, during his prepared
remarks, that Ready Capital’s “CRE portfolio is showing stabilizing credit metrics” and that “[t]he
rate of negative credit migration in the portfolio continues to stabilize.”
84. Defendant Capasse continued, stating that the “growth earnings contribution” of the
Company’s Small Business Lending segment “along with normalization of our CRE business to
historical levels should support a longer-term ROE premium to our peer group.”
85. During the 3Q2024 Earnings Call, Defendant Capasse also shared that “Ready
Capital is well positioned to capitalize on the tailwinds in the CRE market.”
86. Further, Defendant Capasse stated that Ready Capital’s leverage position remains
conservative” as a “total leverage of 3.3 times is below [the Company’s] long-term target of four
times.”
87. Defendant Capasse also remarked, during the 3Q24 Earnings Call that “Ready
Capital is well positioned to capitalize on the tailwinds in the CRE market,” noting that the
Company’s “stabilizing CRE platform” was one of the “key drivers” of its earnings growth.
88. In response to an analyst asking, during the 3Q24 Earnings Call, asking whether
Defendant Capasse’s statements “were sort of you thinking that you’re through [the Company’s]
worst of the commercial real-estate cycle?”, Defendant Capasse stated:
Yes, we’re definitively seeing as evidenced by Adam’s comments in terms of the
kind of sawtooth down in the absolute dollar delinquencies, and what we’re seeing
in terms of the migration of the four or five assets as it relates to the originated
portfolio, it definitely is mirroring the what you’re seeing in terms of the macro
data in the multi-family sector.
89. On November 12, 2024, Ready Capital reported its financial results for the third
quarter of 2024 in its quarterly report on Form 10-Q with the SEC (the “3Q24 10-Q”).
90. The 3Q24 10-Q described the Company’s LMM CRE Segment Results, stating, in
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relevant part:
LMM Commercial Real Estate Segment Results.
Q3 2024 versus Q3 2023. Interest income of $193.3 million represented a decrease
of $26.2 million, primarily due to decreased loan balances, partially offset by
increases in interest rates. Interest expense of $150.5 million represented a decrease
of $18.5 million, driven by decreased debt balances, partially offset by increases in
interest rates. Provision for loan losses of $49.2 million represented an increase of
$63.7 million, primarily due to an increase in asset specific reserves. Non-interest
loss of $19.1 million represented an increase of $50.5 million, primarily due to net
realized losses on financial instruments and real estate owned, partially offset by a
decrease in the valuation allowance related to the transfer of Loans, net to Loans,
held for sale in the first half of 2024. Non-interest expense of $21.1 million
represented a decrease of $8.6 million, due to a decrease in employee compensation
and benefits and loan servicing expenses.
91. The 3Q2024 10-Q included a section titled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” which discussed the Company’s
“critical accounting estimates” and stated that the Company’s “allowance for credit losses” “are
reviewed quarterly considering credit quality indicators, including probable . . . losses.”
92. The 3Q24 10-Q also stated that Ready Capital “estimate[s] the CECL expected
credit losses for our loan portfolio at the individual loan level,” which purportedly included “key
loan-specific inputs” and “a macro-economic forecast.”
93. Specifically, in relevant part, the 3Q24 10-Q stated:
Critical Accounting Estimates Our consolidated financial statements are prepared
in accordance with GAAP, which requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the
reporting period. We believe that all of the decisions and assessments upon which
our consolidated financial statements are based were reasonable at the time made,
based upon information available to us at that time. The following discussion
describes the critical accounting estimates that apply to our operations and require
complex management judgment. This summary should be read in conjunction with
our accounting policies and use of estimates included in “Notes to Consolidated
Financial Statements, Note 3 – Summary of Significant Accounting Policies”
included in Item 8, “Financial Statements and Supplementary Data,” in the
Company’s Form 10-K.
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Allowance for credit losses The allowance for credit losses consists of the
allowance for losses on loans and lending commitments accounted for at
amortized cost. Such loans and lending commitments are reviewed quarterly
considering credit quality indicators, including probable and historical losses,
collateral values, LTV ratio and economic conditions. The allowance for credit
losses increases through provisions charged to earnings and reduced by charge-offs,
net of recoveries.
We utilize loan loss forecasting models for estimating expected life-time credit
losses, at the individual loan level, for its loan portfolio. The Current Expected
Credit Loss (“CECL”) forecasting methods used by the Company include (i) a
probability of default and loss given default method using underlying third-party
CMBS/CRE loan database with historical loan losses and (ii) probability weighted
expected cash flow method, depending on the type of loan and the availability of
relevant historical market loan loss data. We might use other acceptable alternative
approaches in the future depending on, among other factors, the type of loan,
underlying collateral, and availability of relevant historical market loan loss data.
We estimate the CECL expected credit losses for our loan portfolio at the
individual loan level. Significant inputs to our forecasting methods include (i) key
loan-specific inputs such as LTV, vintage year, loan-term, underlying property type,
occupancy, geographic location, and others, and (ii) a macro-economic forecast.
These estimates may change in future periods based on available future
macroeconomic data and might result in a material change in our future estimates
of expected credit losses for its loan portfolio.
94. On November 25, 2024, Ready Capital published its November 2024 Investor
Presentation (the “Investor Presentation”).
95. The Investor Presentation discussed the Company’s purportedly strong market
position and attributed its LMM CRE portfolio as a major contributing factor, as well as the
Company’s “[c]onservative approach to credit with a focus on high conviction sectors, superior
markets, and strong sponsors.”
96. The Investor Presentation also noted its only “<5bps losses incurred on new
originations since the company’s start” and described the Company’s “financial flexibility”
including its “total leverage of 3.3x.”
97. The above statements made on behalf of Ready Capital were materially false and/or
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misleading and failed to disclose material adverse facts about the Company’s business, operations,
and prospects. Specifically, the Individual Defendants made and/or caused the Company to fail to
disclose that, inter alia: (1) Ready Capital’s CRE portfolio held significant non-performing loans
that were not likely to be collectible; (2) Ready Capital’s credit metrics were not stabilizing and
its initiatives to derisk the CRE portfolio were not successful; (3) the non-performing loans
hindered Ready Capital’s financial performance such that Ready Capital would have to fully
reserve the non-performing loans to normalize its CRE portfolio; and (4) Ready Capital’s actual
expected credit loss or valuation allowances did not accurately reflect the impact of the non-
performing loans. As a result of the foregoing, the Company’s public statements regarding its
business, operations, and prospects were materially false and misleading at all relevant times.
The Truth Emerges
98. On March 3, 2025, the truth emerged when, before the market opened, Ready
Capital issued a press release regarding its fourth quarter and full year 2024 financial results (the
“4Q24 Press Release”).
99. The 4Q24 Press Release revealed that the Company experienced a fourth quarter net
loss of $1.80 per share and full year 2024 net loss of $2.52 per share.
100. In the 4Q24 Press Release, Defendant Capasse recognized that 2024 had been a
year of “mixed results” and acknowledged that “aggressive reserving on problem loans” and a
“rightsizing of the dividend to current cash earnings” were needed to “accelerate the path to
recovery.”
101. The 4Q24 Press Release quoted Defendant Capasse as stating that Ready Capital
would need to take “decisive actions to stabilize” its “balance sheet going forward by fully
reserving for all of our non-performing loans in our CRE portfolio.”
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102. The actions referenced in the 4Q24 Press Release included taking approximately
$382 million in reconciling items, including $284 million in combined CECL and valuation
allowances for all of 2024, in order to mark the Company’s non-performing loans to current values.
103. These decisive actions diminished the Company’s book value per share
significantly, from $12.59 in the prior quarter to $10.61.
104. Ready Capital further revealed that its total leverage increased to “3.8x” from the
prior quarter’s total leverage of “3.3x,” and that it cut its dividend to $0.125 per share “to align
with anticipated cash earnings.”
105. Specifically, the 4Q24 Press Release stated, in relevant part:
READY CAPITAL CORPORATION REPORTS FOURTH QUARTER 2024 RESULTS
AND DECLARES FIRST QUARTER 2025 DIVIDENDS
- GAAP LOSS PER COMMON SHARE FROM CONTINUING
OPERATIONS OF $(1.80) -
- DISTRIBUTABLE LOSS PER COMMON SHARE OF $(0.03) -
- DISTRIBUTABLE EARNINGS PER COMMON SHARE BEFORE
REALIZED LOSSES OF $0.23 -
- DISTRIBUTABLE RETURN ON AVERAGE STOCKHOLDERS’
EQUITY BEFORE REALIZED LOSSES OF 7.1% -
- DECLARED A QUARTERLY CASH DIVIDEND OF $0.125 PER
SHARE OF COMMON STOCK AND OPERATING PARTNERSHIP UNIT
FOR THE QUARTER ENDING MARCH 31, 2025 –
New York, New York, March 3, 2025 / Globe Newswire / – Ready Capital
Corporation (“Ready Capital” or the “Company”) (NYSE: RC), a multi-strategy
real estate finance company that originates, acquires, finances, and services lower-
to-middle-market (“LMM”) investor and owner-occupied commercial real estate
loans, today reported financial results for the quarter ended December 31, 2024 and
declared dividends for the quarter ending March 31, 2025.
“The fourth quarter closes out a year of mixed results. On one hand, our Small
Business Lending segment performed well, with significant origination growth
reflecting the benefits of past investments. Meanwhile, our multi-family lending
focused business faced challenges from higher rates, inflationary pressures, and
lower rent growth,” said Thomas Capasse, Ready Capital’s Chairman and Chief
Executive Officer. “Entering 2025, we have taken decisive actions to stabilize and
better position our balance sheet going forward by fully reserving for all of our
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non-performing loans in our CRE portfolio. While this reduces our book value
per share in the short term, we believe it provides a path to recovery in our net
interest margin through the accelerated resolution of our non-performing loans to
generate liquidity for reinvestment in higher-yielding new originations.
Additionally, we have adjusted our dividend to $0.125 per share to align with
anticipated cash earnings to preserve capital for reinvestment and share repurchases
with potential upward bias co-incident with the recovery in earnings. We believe
these actions will enable the Company to resume growth in both book value per
share and the dividend as we move forward.”
Fourth Quarter Highlights
• LMM commercial real estate originations of $436 million
• Small Business Lending (“SBL”) loan originations of $348 million,
including $315 million of Small Business Administration 7(a) loans
• Book value of $10.61 per share of common stock as of December 31, 2024
• Entered into a definitive merger agreement to acquire United Development
Funding IV, a real estate investment trust providing capital solutions to
residential real estate developers and regional homebuilders
• Acquired approximately 5.8 million shares of the Company’s common
stock at an average price of $7.35 per share as part of stock repurchase
program
• Issued $130 million in aggregate principal amount of 9.00% Senior
Unsecured Notes due 2029
Full Year Highlights
• GAAP Loss per common share from continuing operations of $(2.52)
• Distributable earnings per common share before realized losses of $0.97
• Distributable return on average stockholders’ equity before realized losses
of 7.5%
• Total LMM and SBL originations of $2.4 billion, including $1.1 billion of
Small Business Administration 7(a) loans
• Sold $7.6 billion in mortgage servicing rights in connection with the
disposition of its residential mortgage banking segment
• Completed the acquisitions of Madison One, a leading originator and
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servicer of USDA and SBA guaranteed loan product, and Funding Circle
USA, Inc., an online lending platform that originates and services small
business loans
• Acquired approximately 10.3 million shares of the Company’s common
stock at an average price of $7.95 per share as part of stock repurchase
program
106. On the same date, March 3, 2025, Ready Capital held an earnings call to discuss its
financial results for the fourth quarter and full year of 2024 (the “4Q24 Earnings Call”).
107. During 4Q24 Earnings Call, Defendant Capasse stated that Ready Capital has
“undertaken … aggressive actions to reset the balance sheet and go-forward earnings profile,
including “a $284 million combined CECL and valuation allowances, which marks 100% of our
non-performing loans to current values.”
108. On this news, the Company’s stock price fell $1.86 per share, from a closing price of
$6.93 per share on March 2, 2025 to a closing price of $5.07 per share on March 3, 2025, on
unusually heavy trading volume.
REPURCHASES DURING THE RELEVANT PERIOD
109. According to the Company’s public filings, while the price of the Ready Capital’s
common stock was artificially inflated due to the false and misleading statements, the Individual
Defendants caused the Company to repurchase approximately 6,129,950 shares of its own
common stock between August 2024 and March 2025, spending approximately $44,845,997 and
substantially damaging the Company.
110. On March 3, 2025, when the truth was revealed, the Company’s stock was worth
only $5.07 per share.
111. According to the 2024 10-K filed with the SEC on March 3, 2025, between
December 1, 2024 and December 31, 2024, Ready Capital purchased 5,843,463 shares of its
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common stock at an average price of $7.35 per share, totaling approximately $42,949,453.
112. According to the Form 10-Q filed with the SEC on May 3, 2025 (the “1Q25 10-
Q”), between January 1, 2025 and January 31, 2025, the Company purchased 207 shares of its
common stock at an average price of $6.62 per share, totaling approximately $1,370.
113. According to the 1Q25 10-Q, between February 1, 2025 and February 28, 2025, the
Company purchased 286,280 shares of its common stock at an average price of $6.62 per share,
totaling approximately $1,895,174.
114. Given that the price of Ready Capital common stock was $5.07 per share on March
3, 2025, when the truth emerged, the true value of the approximately 6,129,950 shares was roughly
$31,079,167.
115. Accordingly, during the Relevant Period, the Individual Defendants caused the
Company to overpay to repurchase its own common stock by approximately $13,766,830.
DAMAGE TO READY CAPITAL
116. As a direct and proximate result of the Individual Defendants’ conduct, Ready
Capital has lost and will continue to lose and expend significant sums of money.
117. Such expenditures include, but are not limited to, the legal fees, costs, and any
payments for resolution of or to satisfy a judgment associated with the Securities Class Action
filed against the Company and Defendants Capasse and Ahlborn, and amounts paid to outside
lawyers, accountants, and investigators in connection therewith.
118. Such expenditures also include, but are not limited to, fees, costs, and any payments
for resolution of or to satisfy judgments associated with any other lawsuits filed against the
Company or the Individual Defendants based on any misconduct alleged herein and amounts paid
to outside lawyers, accountants, and investigators in connection thereto.
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119. Such expenditures also include, but are not limited to, costs incurred in any internal
investigations pertaining to violations of law, costs incurred in defending any investigations or legal
actions taken against the Company due to its violations of law, and payments of any fines or
settlement amounts associated with the Company’s violations.
120. Such expenditures also include, but are not limited to, the over $13.7 million that
the Company overpaid when it repurchases its own common stock at artificially inflated priced
during the Relevant Period before the truth emerged.
121. Such expenditures also include, but are not limited to, the significant compensation,
benefits, and other payments paid to the Individual Defendants who breached their fiduciary duties
to the Company.
122. As a direct and proximate result of the Individual Defendants’ conduct, Ready
Capital has also suffered and will continue to suffer a loss of reputation and goodwill, and a “liar’s
discount” that will plague the Company’s stock in the future due to the Company’s and the
Individual Defendants’ misrepresentations and wrongdoing as alleged herein.
DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS
123. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
124. Plaintiff brings this action derivatively in the right and for the benefit of Ready
Capital to remedy injuries suffered, and to be suffered, as a result of the Individual Defendants’
breaches of their fiduciary duties as directors and/or officers of Ready Capital, unjust enrichment,
abuse of control, gross mismanagement, waste of corporate assets, and violations of the Exchange
Act, and also brings claims for contribution under Sections 10(b) and 21D of the Exchange Act.
125. Plaintiff is, and has been at all relevant times, a shareholder of Ready Capital.
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Plaintiff understands his obligation to hold stock throughout the duration of this action and is
prepared to do so.
126. Plaintiff will adequately and fairly represent the interests of Ready Capital in
enforcing and prosecuting its rights, and has retained competent counsel, experienced in derivative
litigation, to enforce and prosecute this action.
127. Ready Capital is named solely as a nominal party in this action. This is not a
collusive action to confer jurisdiction on this Court that it would not otherwise have.
128. A pre-suit demand on the Board is futile and, therefore, excused. At the time this
action was filed, Ready Capital’s Board consisted of Defendants Capasse, Ross, Marshall, Mielle,
Nathan, Reese, and Sinai (the “Director-Defendants”). Plaintiff needs only to allege that a majority
of the seven Director-Defendants on the Board at the time this action was filed, i.e. four, cannot
exercise independent objective judgment about whether to bring this action or whether to
vigorously prosecute this action.
129. Each of the Director-Defendants, because of their advisory, managerial, and
directorial positions within the Company, had knowledge of material, non-public information
regarding Ready Capital and were directly involved in the Company’s operations at the highest
levels. As such, the Director-Defendants are unable to objectively investigate the charges and
decide whether to pursue action against themselves and the other perpetrators of the scheme.
130. Each of the Director-Defendants faces, individually and collectively, a substantial
likelihood of liability as a result of the scheme they engaged in knowingly or recklessly to make
and/or cause the Company to make false and misleading statements and omissions of material
facts. As such, the Director-Defendants are unable to objectively investigate the charges and decide
whether to pursue action against themselves and the other perpetrators of the scheme.
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131. Each of the Director-Defendants, by virtue of their roles, were requite to, among
other things: (i) ensure Ready Capital complied with its legal and regulatory obligations and
requirements; (ii) properly and accurately guide investors and analysts as to the true financial
condition of the Company at any given time; (iii) remain informed as to how Ready Capital
conducted its operations, make reasonable inquiries, and take steps to correct any improper
conditions or practices; and (iv) ensure the Company was operated in a diligent, honest, and
prudent manner. The Director-Defendants filed to fulfill these duties by permitting the false and
misleading statements to be made and not correcting those statements.
132. Each of the Director-Defendants, in complete abdication of their fiduciary duties,
the Director-Defendants either knowingly or recklessly caused or permitted Ready Capital to issue
materially false and misleading statements that were intended to make Ready Capital’s CRE
portfolio appear more profitable and stable to investors.
133. Each of the Director Defendants reviewed, authorized, signed, and thus personally
made and/or otherwise permitted the false statements to be disseminated to the public and made
available to shareholders, and are principal beneficiaries of the wrongdoing alleged herein and are
therefore not disinterested parties.
134. Each of the Director-Defendants caused the Company to repurchase its own stock
at artificially inflated prices. As such, the Director-Defendants are unable to objectively investigate
the charges and decide whether to pursue action against themselves and the other perpetrators of
the scheme.
135. Each of the Director-Defendants caused the Company to fail to maintain internal
controls. As a result of the foregoing, the Director-Defendants breached their fiduciary duties, face
a substantial likelihood of liability, are not disinterested, and demand upon them is futile, and thus
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excused.
136. Demand on Defendant Capasse is futile for the additional reasons that follow.
Defendant Capasse has served as CEO and CIO of the Company and as Chairman of the Board since
October 2016. Defendant Capasse receives his principal compensation from his employment with
Ready Capital, making him a non-independent director, as the Company admits. Thus, Defendant
Capasse cannot independently consider any demand to sue himself for breaching his fiduciary
duties because that would expose him to liability and threaten his livelihood. As he receives
substantial compensation from the Company, Defendant Capasse is not independent from the
members of the Compensation Committee who are responsible for evaluating and determining the
compensation of the CEO and Executive Officers, including himself. Thus, Defendant Capasse
could not consider a demand adverse to the other Director Defendants on the Compensation
Committee because they are responsible for his financial future. As CEO and a Company director,
Defendant Capasse was ultimately responsible for all of the false and misleading statements and
omissions that were made by or on behalf of the Company. As the Company’s highest officer and
a trusted Company director, he conducted little, if any, oversight of the scheme to cause the Company
to make false and misleading statements, consciously disregarded his duties to monitor internal
controls over reporting and engagement in the scheme, and consciously disregarded his duties to
protect corporate assets. Moreover, Defendant Capasse is a defendant in the Securities Class
Action and thus is in a position of irreconcilable conflict in terms of the prosecution of this action.
For these reasons, Defendant Capasse breached his fiduciary duties, faces a substantial likelihood
of liability, is not independent or disinterested, and thus demand upon him is futile and, therefore,
excused.
137. Demand on Defendant Ross is futile for the additional reasons that follow.
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Defendant Ross has served as the Company’s President and as a Company director since October
2016. Defendant Ross receives his principal occupation from his employment with Ready Capital,
making him not independent, as the Company admits. Thus, Defendant Ross cannot independently
consider any demand to sue himself for breaching his fiduciary duties because that would expose
him to liability and threaten his livelihood. As he receives substantial compensation from the
Company, Defendant Ross is not independent from the members of the Compensation Committee
who are responsible for evaluating and determining the compensation of the President and
Executive Officers, including himself. Thus, Defendant Ross could not consider a demand adverse
to the other Director Defendants on the Compensation Committee because they are responsible for
his financial future. As the trusted President and as a Company director, he conducted little, if any,
oversight of the scheme to cause the Company to make false and misleading statements,
consciously disregarded his duties to monitor internal controls over reporting and engagement in
the scheme, and consciously disregarded his duties to protect corporate assets. For these reasons,
Defendant Ross breached his fiduciary duties, faces a substantial likelihood of liability, is not
disinterested, and thus demand upon him is futile and, therefore, excused.
138. Demand on Defendant Marshall is futile for the additional reasons that follow.
Defendant Marshall has served as a Company director since December 2022. He also serves as a
member of the Compensation Committee and as a member of the Nominating and Corporate
Governance Committee. Defendant Marshall has received and continues to receive significant
compensation for his role as a director. As a trusted Company director, he conducted little, if any,
oversight of the scheme to cause the Company to make false and misleading statements,
consciously disregarded his duties to monitor internal controls over reporting and engagement in
the scheme, and consciously disregarded his duties to protect corporate assets. For these reasons,
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Defendant Marshall breached his fiduciary duties, faces a substantial likelihood of liability, is not
disinterested, and thus demand upon him is futile and, therefore, excused.
139. Demand on Defendant Mielle is futile for the additional reasons that follow.
Defendant Mielle has served as a Company director since March 2021. During the Relevant Period,
she served as a member of the Compensation Committee and as a member of the Nominating and
Corporate Governance Committee. She currently serves as the Chair of the Audit Committee and as
a member of the Compensation Committee. Defendant Mielle has received and continues to
receive significant compensation for her role as a director. As a trusted Company director, she
conducted little, if any, oversight of the scheme to cause the Company to make false and
misleading statements, consciously disregarded her duties to monitor internal controls over
reporting and engagement in the scheme, and consciously disregarded her duties to protect
corporate assets. For these reasons, Defendant Mielle breached her fiduciary duties, faces a
substantial likelihood of liability, is not disinterested, and thus demand upon her is futile and,
therefore, excused.
140. Demand on Defendant Nathan is futile for the additional reasons that follow.
Defendant Nathan has served as a Company director since March 2019. He serves as a member of
the Audit Committee and as a member of the Nominating and Corporate Governance Committee.
Defendant Nathan has received and continues to receive significant compensation for his role as a
director. As a trusted Company director, he conducted little, if any, oversight of the scheme to
cause the Company to make false and misleading statements, consciously disregarded his duties
to monitor internal controls over reporting and engagement in the scheme, and consciously
disregarded his duties to protect corporate assets. For these reasons, Defendant Nathan breached
his fiduciary duties, faces a substantial likelihood of liability, is not disinterested, and thus demand
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upon him is futile and, therefore, excused.
141. Demand on Defendant Reese is futile for the additional reasons that follow.
Defendant Reese has served as a Company director since October 2016 and as the Company’s
Lead Independent Director since April 2025. He also serves as the Chairman of the Nominating
and Corporate Governance Committee and as a member of the Audit Committee. Defendant Reese
has received and continues to receive significant compensation for his role as a director. As a
trusted Company director, he conducted little, if any, oversight of the scheme to cause the
Company to make false and misleading statements, consciously disregarded his duties to monitor
internal controls over reporting and engagement in the scheme, and consciously disregarded his
duties to protect corporate assets. For these reasons, Defendant Reese breached his fiduciary duties,
faces a substantial likelihood of liability, is not disinterested, and thus demand upon him is futile
and, therefore, excused.
142. Demand on Defendant Sinai is futile for the additional reasons that follow.
Defendant Sinai has served as a Company director since October 2016. He serves as the Chairman
of the Compensation Committee and as a member of the Nominating and Corporate Governance
Committee. Defendant Sinai has received and continues to receive significant compensation for
his role as a director. As a trusted Company director, he conducted little, if any, oversight of the
scheme to cause the Company to make false and misleading statements, consciously disregarded
his duties to monitor internal controls over reporting and engagement in the scheme, and
consciously disregarded his duties to protect corporate assets. For these reasons, Defendant Sinai
breached his fiduciary duties, faces a substantial likelihood of liability, is not disinterested, and
thus demand upon him is futile and, therefore, excused.
143. Demand is further futile as to Defendants Capasse and Ross for the additional
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reasons that follow. Defendants Capasse and Ross are co-founders and managers of Waterfall, the
Company’s external manager and advisor. Having created a company together, a company that
manages Ready Capital, Defendants Capasse and Ross have developed a longstanding business
relationship and could not objectively consider a demand to sue each other. For these reasons,
Defendants Capasse and Ross are not independent or disinterested and demand upon them is futile,
and therefore, excused.
144. Demand is further futile as to Defendants Reese and Sinai for the additional reasons
that follow. Defendants Reese and Sinai both served on the board of directors of Sutherland Asset
Management Corporation between November 2013 and October 2016. As such, Defendants Reese
and Sinai have developed a longstanding business relationship and could not objectively consider
a demand to sue one another. For these reasons, Defendants Reese and Sinai are not independent
or disinterested and demand upon them is futile, and therefore, excused.
145. Demand is further futile as to Defendants Nathan and Reese (collectively, the
“Audit Committee Defendants”) because the Audit Committee Defendants served as members of
the Audit Committee at all relevant times. As such, they were responsible for the effectiveness of
the Company’s internal controls, the truth and accuracy of the Company’s financial statements, and
the Company’s compliance with applicable laws and regulations. During the Relevant Period, the
Audit Committee Defendants failed to adequately review and discuss the Company’s quarterly
earnings press releases; failed to adequately exercise their risk management and risk assessment
functions; and failed to ensure adequate Board oversight of the Company’s internal control over
financial reporting, disclosure controls and procedures, and Code of Ethics. The Audit Committee
Defendants violated the Audit Charter by engaging in or permitting the Company to engage in the
dissemination of materially false and misleading statements to the public and to facilitate the
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Individual Defendants’ violations of law. Thus, the Audit Committee Defendants breached their
fiduciary duties, are not independent or disinterested, and thus demand is excused as to them.
146. In violation of the Code of Ethics, the Director-Defendants engaged in or permitted
the scheme to cause the Company to issue materially false and misleading statements to the
investing public, and to facilitate and disguise the Individual Defendants’ violations of law. In
addition, the Individual Defendants violated the Code of Ethics by failing to act with integrity,
avoid conflicts of interest, ensure the Company’s disclosures were accurate, ensure the Company
complied with applicable laws, rules, and regulations, and promptly report known violations of the
Code of Ethics and the law. Thus, the Director-Defendants breached Ready Capital’s Code of
Ethics, are not disinterested, and demand is excused as to them.
147. Each of the Director-Defendants received payments, benefits, stocks options, and
other compensation by virtue of their members on the Board and their control of the Company.
148. Ready Capital has and will continue to be exposed to significant losses due to the
wrongdoing complained of herein, yet the Director-Defendants have not filed any lawsuits against
themselves or any others who were responsible to attempt to recover for Ready Capital. Thus, any
demand upon the Director-Defendants would be futile.
149. The Individual Defendants’ conduct was based on bad faith and intentional,
reckless, or disloyal misconduct and thus, could not have been the product of legitimate business
judgment. As such, to the extent such a provision exists, none of the Director-Defendants can claim
exculpation from their violations of duty pursuant to the Company’s charter.
150. The acts complained of herein constitute violations of fiduciary duties owed by
Ready Capital’s officers and directors, and these acts are incapable of ratification.
151. As a majority of the Director-Defendants face a substantial likelihood of liability,
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they are self-interested in the transactions challenged herein and cannot exercise independent and
disinterested judgment about whether to pursue this action on behalf of the shareholders of the
Company. Accordingly, demand is excused as being futile.
152. The Director-Defendants may also be protected against personal liability for their
acts of mismanagement and breaches of fiduciary duty alleged herein by directors’ and officers’
liability insurance if they caused the Company to purchase it for their protection with corporate
funds (monies belonging to the stockholders of Ready Capital). If there is a directors’ and officers’
liability insurance policy covering the Director-Defendants, it may contain provisions that
eliminate coverage for any action brought directly by the Company against the Director-
Defendants, known as, inter alia, the “insured-versus-insured exclusion.” As a result, if the
Director-Defendants were to sue themselves or certain of the officers of Ready Capital, there
would be no directors’ and officers’ insurance protection. Accordingly, the Director-Defendants
cannot be expected to bring such a suit. Thus, demand on the Director-Defendants is futile and,
therefore, excused. On the other hand, if the suit is brought derivatively, as this action is brought,
such insurance coverage, if such an insurance policy exists, will provide a basis for the Company
to effectuate a recovery. Thus, demand on the Director-Defendants is futile and, therefore, excused.
153. If there is no directors’ and officers’ liability insurance, then the Director-
Defendants will not cause Ready Capital to sue the Individual Defendants named herein, since, if
they did, they would face a large uninsured individual liability. Accordingly, demand is futile in
that event, as well.
154. For all of these reasons, all of the Director-Defendants, and at least a majority, i.e.
four, cannot consider a demand with disinterestedness and independence. Consequently, a demand
upon the Board is excused as futile.
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CLAIM I
Against the Individual Defendants for Breach of Fiduciary Duties
155. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
156. Each Individual Defendant owed to the Company the duty to exercise candor, good
faith, due care, and loyalty in the management and administration of Ready Capital’s business and
affairs.
157. Each of the Individual Defendants violated and breached his or her fiduciary duties
of candor, good faith, loyalty, reasonable inquiry, oversight, and supervision.
158. In breach of their fiduciary duties, the Individual Defendants caused the Company
to fail to maintain internal controls.
159. The Individual Defendants had actual or constructive knowledge that they had
caused the Company to engage in the fraudulent scheme set forth herein and to fail to maintain
adequate internal controls. The Individual Defendants engaged in a sustained and systematic
failure to properly exercise their fiduciary duties and breached their fiduciary duties of loyalty and
good faith by allowing the Company to improperly misrepresent the Company’s publicly reported
financials.
160. The Individual Defendants’ conduct set forth herein was due to their intentional or
reckless breach of the fiduciary duties they owed to the Company. The Individual Defendants
intentionally or recklessly breached or disregarded their fiduciary duties to protect the rights and
interests of Ready Capital.
161. The Individual Defendants’ conduct was committed knowingly or recklessly and
for the purpose and effect of artificially inflating the price of the Company’s securities. The
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Individual Defendants, in good faith, should have taken appropriate action to correct the scheme
alleged herein and to prevent it from continuing to occur.
162. The Individual Defendants’ actions could not have been a good faith exercise of
prudent business judgment to protect and promote the Company’s corporate interests.
163. Moreover, the Individual Defendants breached their fiduciary duties by personally
making and/or causing the Company to make materially false and misleading statements about
Ready Capital ’s business, operations, and prospects. Specifically, the Individual Defendants made
and/or caused the Company to fail to disclose that, inter alia: (1) Ready Capital’s CRE portfolio
held significant non-performing loans that were not likely to be collectible; (2) Ready Capital’s
credit metrics were not stabilizing and its initiatives to derisk the CRE portfolio were not
successful; (3) the non-performing loans hindered Ready Capital’s financial performance such that
Ready Capital would have to fully reserve the non-performing loans to normalize its CRE portfolio;
and (4) Ready Capital’s actual expected credit loss or valuation allowances did not accurately
reflect the impact of the non-performing loans. As a result of the foregoing, the Company’s public
statements regarding its business, operations, and prospects were materially false and misleading
at all relevant times.
164. The Individual Defendants failed to correct and/or caused the Company to fail to
correct the false and misleading statements and omissions of material fact, thus rendering them
personally liable to the Company for breaching their fiduciary duties.
165. The Individual Defendants had actual knowledge of the misrepresentations and
omissions of material facts set forth herein or acted with reckless disregard for the truth by failing
to ascertain and to disclose such facts, even though such facts were available to them.
166. As a direct and proximate result of the Individual Defendants’ breaches of their
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fiduciary obligations, Ready Capital has sustained and continues to sustain significant damages.
167. As a result of the misconduct alleged herein, the Individual Defendants are liable
to the Company.
168. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM II
Against the Individual Defendants for Violations of Section 10(b) and Rule 10b-5 of the
Exchange Act
169. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
170. The Individual Defendants disseminated and/or approved public statements that
failed to disclose the true facts regarding Ready Capitals business, operations, and prospects. As a
result, the Individual Defendants’ public statements were materially false and misleading at all
relevant times and the price of the Company’s shares was artificially inflated as a result.
171. As members of Ready Capital’s Board and senior management team, and based on
their roles at the Company, each of the Individual Defendants acted with scienter in that they either
had actual knowledge of the scheme and the misrepresentations and/or omissions of material facts
set forth herein or acted with reckless disregard for the truth in that they failed to ascertain and to
disclose the true facts, even though such facts were available to them.
172. The Individual Defendants were the top executives of the Company, or received
direct briefings from them, and were therefore directly responsible for the scheme set forth herein
and for the false and misleading statements and/or omissions disseminated to the public through
filings with the SEC.
173. The Individual Defendants directly participated in the management of the Company
at the highest levels and were privy to confidential proprietary information concerning the
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Company and its business, operations, financial statements, and financial condition. The Individual
Defendants had the ultimate authority over and were involved in drafting, producing, reviewing,
and/or disseminating the false and misleading statements and information alleged herein, and were
aware, or recklessly disregarded that the statements were in violation of the federal securities laws.
174. The Individual Defendants individually and in concert, directly and indirectly, by
the use and means of instrumentalities of interstate commerce and/or of the mails, engaged and
participated in a continuous course of conduct designed to falsify the Company’s press releases,
public statements made in earnings calls, and periodic and current reports filed with the SEC.
175. The Individual Defendants employed devices, schemes, and artifices to defraud
while in the possession of adverse, material, non-public information and engaged in acts, practices
and a course of conduct that included the making of, or participation in the making of, untrue
and/or misleading statements of material facts and/or omitting to state material facts necessary in
order to make the statements made about Ready Capital not misleading.
176. The Individual Defendants participated in the fraudulent scheme alleged by virtue
of their receipt of information reflecting the true facts regarding Ready Capital, their control over,
and/or receipt and/or modification of Ready Capital’s materially misleading statements and their
associations with the Company which made them privy to confidential proprietary information
concerning Ready Capital.
177. At a minimum, the Individual Defendants failed to review or check information
that they had a duty to monitor or ignored obvious signs that their statements were materially false
and misleading or contained material omissions. Given the nature and extent of the problems at
Ready Capital, the Individual Defendants knew and/or recklessly disregarded the extent and scope
of their statements.
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178. Ready Capital is one of the largest victims of the unlawful scheme perpetrated
against it by the Individual Defendants. With the price of its common stock artificially inflated
prices due to the Individual Defendants’ misconduct, the Individual Defendants caused the
Company to repurchase millions of its own shares, damaging Ready Capital.
179. By virtue of the foregoing, the Individual Defendants have violated §10(b) of the
Exchange Act, and Rule 10b-5 promulgated thereunder and are liable for any harm caused to the
Company.
CLAIM III
Against the Individual Defendants for Violations of Section 20(a) of the Exchange Act
180. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
181. The Individual Defendants, by virtue of their positions with Ready Capital and their
specific acts, acted as controlling persons of Ready Capital within the meaning of §20(a) of the
Exchange Act. By virtue of their positions as officers and directors of the Company, the Individual
Defendants had the authority, power, and influence to cause the Company to issue false and
misleading statements and to repurchase Ready Capital stock at artificially inflated prices because
of those materially false and misleading statements.
182. The Individual Defendants exercised their authority, power, and influence to cause
Ready Capital to engage in the illegal conduct and practices complained of herein.
183. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM IV
Against the Individual Defendants for Aiding and Abetting Breach of Fiduciary Duty
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184. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
185. By encouraging and accomplishing the illegal and improper transactions alleged
herein and concealing them from the public, the Individual Defendants have encouraged,
facilitated, and advanced their breaches of their fiduciary duties. The Individual Defendants have
aided and abetted, conspired, and schemed with one another to breach their fiduciary duties, waste
the Company’s corporate assets, and engage in the wrongful conduct complained of herein.
186. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM V
Against the Individual Defendants for Unjust Enrichment
187. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
188. By their wrongful acts, violations of law, and false and misleading statements and
omissions of material fact that they made and/or caused to be made, the Individual Defendants
were unjustly enriched at the expense of, and to the detriment of, Ready Capital.
189. The Individual Defendants either benefitted financially from the improper conduct,
or received bonuses, stock options, or similar compensation from Ready Capital that was tied to
the performance or artificially inflated valuation of Ready Capital or received compensation or
other payments that were unjust in light of the Individual Defendants’ bad faith conduct.
190. Plaintiff, as a shareholder and representative of Ready Capital, seeks restitution
from the Individual Defendants and seeks an order from this Court disgorging all profits, benefits,
and other compensation, including any performance-based or valuation-based compensation,
obtained by the Individual Defendants due to their wrongful conduct and breaches of their
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fiduciary duties.
191. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM VI
Against the Individual Defendants for Abuse of Control
192. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
193. The Individual Defendants’ misconduct alleged herein constituted an abuse of their
ability to control and influence Ready Capital, for which they are legally responsible.
194. As a direct and proximate result of the Individual Defendants’ abuse of control,
Ready Capital has sustained significant damages. As a result of the misconduct alleged herein, the
Individual Defendants are liable to the Company.
195. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM VII
Against the Individual Defendants for Gross Mismanagement
196. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
197. By their actions alleged herein, the Individual Defendants, either directly or through
aiding and abetting, abandoned and abdicated their responsibilities and fiduciary duties with regard
to prudently managing the assets and business of Ready Capital in a manner consistent with the
operations of a publicly-held corporation.
198. As a direct and proximate result of the Individual Defendants’ gross
mismanagement and breaches of duty alleged herein, Ready Capital has sustained and will
continue to sustain significant damages.
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199. As a result of the misconduct and breaches of duty alleged herein, the Individual
Defendants are liable to the Company.
200. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM VIII
Against the Individual Defendants for Waste of Corporate Assets
201. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
202. The wrongful conduct alleged herein was continuous, connection, and on-going. It
resulted in continuous, connected, and on-going harm to Ready Capital.
203. As a results of the wrongdoing, the Company has and will continue to incur many
millions of dollars of legal liability and/or costs to defend legal actions, including the Securities
Class Action, to engage in internal investigations, and to lose financing from investors and
business from future customers who no longer trust the Company and its products.
204. In addition, the Individual Defendants wasted corporate assets by paying excessive
compensation and bonuses to certain of its executive officers and awarding self-interested stock
options to certain officers and directors.
205. In addition, the Individual Defendants caused the Company to repurchase millions
of shares of its own common stock at artificially inflated prices, thereby wasting the Company’s
assets.
206. As a result of the waste of corporate assets, the Individual Defendants are each
liable to the Company.
207. Plaintiff, on behalf of Ready Capital, has no adequate remedy at law.
CLAIM IX
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Against Defendants Capasse and Ahlborn for Contribution Under Sections 10(b) and 21D of the
Exchange Act
208. Plaintiff incorporates by reference and realleges each and every allegation set forth
above, as though fully set forth herein.
209. Ready Capital and Defendants Capasse and Ahlborn are named as defendants in
the Securities Class Action, which assert claims under the federal securities laws for violations of
Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder.
210. If and when Ready Capital is found liable in the Securities Class Action, the
Company’s liability will be in whole or in part due to Defendants Capasse’s and Ahlborn’s willful
and/or reckless violations of their obligations as officers and/or directors of Ready Capital.
211. Defendants Capasse and Ahlborn, because of their positions of control and
authority as officers and/or directors of Ready Capital, were able to and did, directly and/or
indirectly, exercise control over the business and corporate affairs of Ready Capital, including the
wrongful acts complained of herein and in the Securities Class Action.
212. Accordingly, Defendants Capasse and Ahlborn are liable under 15 U.S.C. § 78j(b),
which creates a private right of action for contribution, and Section 21D of the Exchange Act, 15
U.S.C. § 78u-4(f), which governs the application of a private right of action for contribution arising
out of violations of the Exchange Act.
213. As such, Ready Capital is entitled to receive all appropriate contribution or
indemnification from Defendants Capasse and Ahlborn.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment in the Company’s favor against all Individual
Defendants as follows:
(a) Declaring that Plaintiff may maintain this action on behalf of Ready Capital, and
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that Plaintiff is an adequate representative of the Company;
(b) Declaring that the Individual Defendants have breached and/or aided and abetted
the breach of their fiduciary duties to Ready Capital;
(c) Determining and awarding to Ready Capital the damages sustained as a result of
the violations set forth above from each of the Individual Defendants, jointly and severally,
together with pre-judgment and post-judgment interest thereon;
(d) Directing Ready Capital and the Individual Defendants to take all necessary actions
to reform and improve Ready Capital’s corporate governance and internal procedures to comply
with applicable laws and to protect Ready Capital and its shareholders from a repeat of the
damaging events described herein;
(e) Awarding Ready Capital restitution from the Individual Defendants, and each of
them;
(f) Awarding Plaintiff the costs and disbursements of this action, including reasonable
attorneys’ and experts’ fees, costs, and expenses; and
(g) Granting such other and further relief as the Court may deem just and proper.
JURY DEMAND
Plaintiff hereby demands a trial by jury trial.
Dated: July 24, 2025 GOLDMAN & MINTON, P.C.
By: /s/ _______________________
Thomas J. Minton (D. Md. no. 03370)
3600 Clipper Mill Rd., Suite 201
Baltimore, MD 21211
Ph: (410) 783-7575
Fax: (410) 783-1711
Email: tminton@charmcitylegal.com
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THE ROSEN LAW FIRM, P.A.
Phillip Kim
275 Madison Avenue, 40th Floor
New York, NY 10016
Telephone: (212) 686-1060
Fax: (212) 202-3827
Email: philkim@rosenlegal.com
Counsel for Plaintiff Kevin Cote
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