Federal Judge Allows Investor Class Action Over Lightstone REIT Disclosures to Proceed
From the desk of Jim Eccleston at 蘑菇传媒
A federal judge has allowed investors to proceed with a class-action lawsuit alleging that directors and advisors of three Lightstone Value Plus REITs failed to disclose a significant conflict of interest before shareholders voted on amendments extending the funds' operating periods.
U.S. District Judge Michael A. Shipp ruled on Aug. 5 that investors adequately alleged that proxy materials and related shareholder solicitation calls failed to disclose a material conflict involving David Lichtenstein, the REITs' chairman and CEO. Through affiliated entities, Lichtenstein also owned the funds' external advisers, as reported by AltsWire.
The case will proceed on all four counts, including claims for breach of fiduciary duty against the director defendants and advisory entities.
According to AltsWire, investors allege that Lichtenstein controlled three special-purpose entities that held subordinated participation interests in the REITs, potentially worth more than $59.8 million. Those interests would have become worthless if Lightstone Value Plus REIT II and REIT III had liquidated according to their original charters by September 2024 and March 2025, respectively.
The 2022 proxy statements disclosed Lichtenstein's interests but allegedly failed to explain that the interests had no value unless the REITs extended their operating periods. Judge Shipp found that the omitted information could have materially affected a reasonable shareholder's understanding of the proposed amendments.
The judge also found that shareholder solicitors hired by Lightstone made misleading statements between the REITs' initial December 2022 annual meeting and a reconvened meeting in January 2023. The proposed amendments failed at the first meeting but passed at the second. According to the plaintiffs, solicitors told undecided shareholders that voting "yes" represented the most likely path to liquidity, even though the amendments eliminated the liquidation deadline.
As AltsWire reports, the court found that the proxy materials failed to satisfy basic disclosure requirements, emphasizing that proxy materials should provide clear information rather than leave shareholders to piece together material facts.
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Tags: eccleston, eccleston law, securities litigation, reits, shareholder class action, disclosure requirements, conflict of interest
