Wednesday, June 15, 2016

Class action lawsuit charges Northpark Mall owners, Sen. Corker with insider trading

A class action lawsuit filed May 27 in U. S. District Court for the Eastern District of Tennessee claims CBL & Associates, owner of Northpark Mall in Joplin committed fraud and was involved in insider trading, involving Sen. Robert Corker of Tennessee.

Corker has been in the news recently as a possible vice presidential choice for Republican presumptive nominee Donald Trump.

Earlier this week, CBL acknowledged that it has been investigated by the SEC and FBI, though the news release the company issued made it appear that the issue was a minor one.

That is not the impression left by the lawsuit, which was filed by CBL shareholders:

In November 2015, a political watchdog group filed a complaint with the SEC alleging that Tennessee Senator Robert Corker, who has significant personal ties to CBL, may have engaged in insider trading of CBL stock using material, non-public information. CBL was not a named party in that complaint and refrained from comment on the allegations against Senator Corker. 

On May 24, 2016, after the markets had closed, the Wall Street Journal reported that CBL is under investigation by both the Federal Bureau of Investigation (“FBI”) and the SEC for allegedly inflating the Company’s “rental income and occupancy rates for its properties when providing those figures to banks” when applying for financing arrangements, according to former CBL employees who have been questioned by the federal agencies. The article also claimed that “FBI and SEC officials have also separately asked questions about the relationship between the company and Mr. Corker, who is close with senior executives at the firm and has made millions of dollars in profits trading the company’s stock in recent years.”

The lawsuit says these acts by CBL and its dealings with Corker have devalued the company's stock and caused the shareholders "considerable loss and damages."

Named as defendants in the lawsuit are CBL, its CEO Steven Lebovitz and its CFO Farzana K. Mitchell.

Corker is not a defendants, but is named as a "relevant non-party."

The group, Campaign for Accountability filed the complaint against Corker, saying he had made 70 trades of CBL stock, far more than he made with any other company in his portfolio.

” Some of the trades closely preceded announcements by CBL leading to changes in the stock’s price, resulting in the senator making millions of dollars. In essence, the CFA complaint alleged, “Sen. Corker bought low, sold high, and failed to disclose his profit in the prescribed time.” 

The CFA account detailed Corker's trading:

On July 26 and July 27, 2010, Sen. Corker sold his CBL stock in two trades collectively worth between $2 million and $10 million. Shortly thereafter, on August 5, 2010, UBS dropped its rating of CBL from "neutral" to "sell," causing a tumble in the stock's value: the day of the announcement, the stock slipped from $13.92 to $13.40. A week later, it registered a value of $12.55, and would subsequently fall even further. 

Sen. Corker continued actively trading CBL stock in 2011, registering 14 total trades. As in 2010, on at least one occasion his trades closely preceded favorable ratings adjustments by UBS, resulting in a windfall, and on multiple occasions, his trades preceded announcements of CBL of new investments and acquisitions, which precipitated a boost in price. Sen. Corker's first CBL trade of the year occurred on January 24, 2011, when he purchased between $500,000 and $1 million worth of stock at approximately $16.90/share. 

Notably, this purchase preceded a CBL conference call that announced better than anticipated results and disclosed new investments in four CBL properties, which preceded a weeks-long surge in the price of CBL. On April 6, 2011, Sen. Corker bought another $500,000-$1 million worth of CBL stock, this time at about $17.51/share. CBL's stock price hit a three-month high on April 27, 2011 of $18.70. The same day, the senator sold a block of shares worth between $1 million and $5 million. His investment on April 6 appears to have earned him between approximately $34,000 and $68,000 during that period.

The complaint filed with the SEC also examines Corker's connections with CBL:

Sen. Corker's ties to CBL date back to the origins of his professional life: he worked for a company whose primary business was subcontracting for CBL after college and then went out on his own, starting a construction company, and later his own very successful real estate development business, the Corker Development Company. 

When Sen. Corker was elected mayor of Chattanooga, CBL and Corker were the two largest developers in the county. CBL executives were the first and most generous donors when Sen. Corker filed to run for Senate in 2006, contributing $24,000, constituting 56% of his first day's take. CBL executives, employees and their spouses have been among the senator's top campaign donors, contributing $88,706 to his campaign committee and PAC. 

CBL executives also hold leadership positions in trade groups that have supported Sen. Corker's political career. Members of the Lebovitz family, which owns CBL, have for years served on the board of governors of the National Association for Real Estate Investment Trusts (NAREIT). Stephen Lebovitz, the president and CEO of CBL, is the current chair of the International Council of Shopping Centers (ICSC). These two groups were part of a nine-PAC consortium that held a fundraiser for Sen. Corker in Washington in 2011, and have donated $15,000 directly to his campaign committee since his arrival in the Senate. In the same period, CBL executives have contributed more than $50,000 each to NAREIT and the ICSC, indirectly funding Sen. Corker.

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