A former Compass agent has accused the New York brokerage of using “bait-and-switch” tactics to lure him and other agents from competitors.
In a lawsuit filed in California last week, J. Gregory Maffei alleged Compass utilizes “unfair, unlawful and fraudulent business practices” designed to gain market share by recruiting agents with an “empty promise.”
The complaint, which seeks class-action status, demands $10 million in damages and reimbursement for unpaid commission and expenses.
By including Maffei’s contract, the suit further pulls back the curtain on Compass’ recruiting tactics, which have been the subject of other lawsuits from competing firms, including Realogy.
Maffei’s suit claims Compass has leveraged “more than $1 billion in funding from venture capitalists to support its ‘bait-and-switch’ tactics and to account for the losses Compass has incurred by overpaying and poaching its competitors’ real estate agents.” The filing was first reported by Inman.
According to the suit, Maffei joined Compass last year after 14 years at RE/MAX Estate Properties in Los Angeles.
Compass offered an “amazing compensation package,” including a $16,800 signing bonus, 90 percent split and a $49,000 “launch” marketing budget to get Maffei up and running, the suit claimed. It also promised restricted stock units.
Maffei claimed Compass didn’t tell him he’d receive restricted stock in the company, not common stock. Restricted stock units are subject to vesting and other restrictions.
Since 2018, Compass has allowed agents to invest commission payments into company stock, which agents hope will be valuable once the company goes public. Having raised $1.5 billion from investors, including SoftBank, Compass hired bookrunners last year to lay the groundwork for a potential IPO.
But Maffei alleged the model is nothing more than an “unlawful Ponzi scheme or a get-rich-quick scheme,” the complaint read. “Compass’ agents were pressured to give up hard-earned money to invest in Compass.”
According to the complaint, Compass also breached agents’ independent contractor agreements, in part by exercising a level of control of agents that should warrant employee status. It also paid out commissions based on a net commission number that includes deductions for expenses. And it engages in price-fixing by collecting its share of earned commission “based on the industry standard of 5 percent,” even if the seller and agent negotiated a lower amount.
Compass didn’t immediately respond to a request for comment. [Inman] — E.B. Solomont and Orion Jones