Empire State Building Investors Launch Another Suit Over IPO
By Natalie Rodriguez
Law360, New York (December 19, 2014, 4:28 PM ET) -- Several investors lobbed a securities fraud suit on Thursday in New York federal court against the Empire State Building's manager and asset management company Malkin Holdings LLC and its principals over allegedly fraudulently cheating the plaintiffs in last year's real estate investment trust deal and subsequent initial public offering.
Investors claim Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner Jr. misled them and omitted certain information when soliciting consents for the roll-up of the Empire State Building into a REIT and the subsequent IPO. The suit claims Securities Exchange Act violations, including securities fraud and misrepresentation, and contends that Malkin Holdings owed a fiduciary duty to the investors to explore buyout bids for the Empire State Building, but instead cheated them by pushing forward the REIT deal and IPO.
"No aspect of the proposed consolidation was the result of arm's-length negotiation. The entire process of structuring the REIT was undertaken at defendants' sole discretion," the complaint said. "Defendants neither involved the participants nor took steps to provide independent representation on their behalf, an omission that defendants acknowledge could have resulted in a substantially different outcome."
The investor group contends that the REIT was structured to allow Malkin Holdings defendants to take advantage of the estate of Leona M. Helmsley's planned divestiture of its interests in the Empire State Building, with the defendants expected to reap more than $730 million from securities, plus an increase in their equity holdings of the consolidated properties, according to the claims.
Investors contend the "defendants' self-dealing and failure to consider the participants' interests was subtle but egregious." For example, the plaintiffs allege that there is a mechanism that allows the defendants to avoid paying taxes by opting to receive operating unit securities rather than Class A shares, but that this option was not provided to the investor participants, according to the complaint.
The plaintiff shareholders noted that the federal securities claims they asset are subject to arbitration and that they are currently pursuing the same claims in a proceeding before the American Arbitration Association.
"In consequence and out of an abundance of caution, plaintiffs file this complaint to toll the statute of limitations as to these claims in the event the arbitrators determine that these claims are not subject to arbitration," the complaint said.
This is just the latest in a series of suits to be lobbed against Malkin Holdings since the REIT deal and IPO. In July, a New York state judge tossed a $600 million class action that alleged similar claims, saying the suit was barred by a previous settlement agreements.
The judge said the plaintiffs had not specified any offers that Malkin Holdings had rejected after a $55 million class action settlement between the two parties was approved last year and the suit must be dismissed. The May 2013 settlement agreement contained a covenant not to sue.
In Thursday's suit, the plaintiffs do allege several June 2013 and July 2013 offers, including a a $2 billion bid from Cammeby's International Group in June 2013, a $2.1 billion play from Philips International and two separate bids from Thor Equities LLC, among others.
A New York appeals court also sided with Malkin Holdings in February, affirming that members of an investor group challenging the roll-up plan and IPO were not members of the limited liability company that owns the building.
The investor plaintiffs are represented by Richard I. Janvey of Diamond McCarthy LLP and John W. Griggs and Debra B. Adler of Griggs & Adler PC.
Counsel information for the managers was not immediately available.
The suit is Emil Shasha et al. v. Peter L. Malkin et al., case number 14-cv-09989, in the U.S. District Court for the Southern District of New York.
--Additional reporting by Benjamin Horney and Karlee Weinmann. Editing by Katherine Rautenberg.
Law360, New York (December 19, 2014, 4:28 PM ET) -- Several investors lobbed a securities fraud suit on Thursday in New York federal court against the Empire State Building's manager and asset management company Malkin Holdings LLC and its principals over allegedly fraudulently cheating the plaintiffs in last year's real estate investment trust deal and subsequent initial public offering.
Investors claim Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner Jr. misled them and omitted certain information when soliciting consents for the roll-up of the Empire State Building into a REIT and the subsequent IPO. The suit claims Securities Exchange Act violations, including securities fraud and misrepresentation, and contends that Malkin Holdings owed a fiduciary duty to the investors to explore buyout bids for the Empire State Building, but instead cheated them by pushing forward the REIT deal and IPO.
"No aspect of the proposed consolidation was the result of arm's-length negotiation. The entire process of structuring the REIT was undertaken at defendants' sole discretion," the complaint said. "Defendants neither involved the participants nor took steps to provide independent representation on their behalf, an omission that defendants acknowledge could have resulted in a substantially different outcome."
The investor group contends that the REIT was structured to allow Malkin Holdings defendants to take advantage of the estate of Leona M. Helmsley's planned divestiture of its interests in the Empire State Building, with the defendants expected to reap more than $730 million from securities, plus an increase in their equity holdings of the consolidated properties, according to the claims.
Investors contend the "defendants' self-dealing and failure to consider the participants' interests was subtle but egregious." For example, the plaintiffs allege that there is a mechanism that allows the defendants to avoid paying taxes by opting to receive operating unit securities rather than Class A shares, but that this option was not provided to the investor participants, according to the complaint.
The plaintiff shareholders noted that the federal securities claims they asset are subject to arbitration and that they are currently pursuing the same claims in a proceeding before the American Arbitration Association.
"In consequence and out of an abundance of caution, plaintiffs file this complaint to toll the statute of limitations as to these claims in the event the arbitrators determine that these claims are not subject to arbitration," the complaint said.
This is just the latest in a series of suits to be lobbed against Malkin Holdings since the REIT deal and IPO. In July, a New York state judge tossed a $600 million class action that alleged similar claims, saying the suit was barred by a previous settlement agreements.
The judge said the plaintiffs had not specified any offers that Malkin Holdings had rejected after a $55 million class action settlement between the two parties was approved last year and the suit must be dismissed. The May 2013 settlement agreement contained a covenant not to sue.
In Thursday's suit, the plaintiffs do allege several June 2013 and July 2013 offers, including a a $2 billion bid from Cammeby's International Group in June 2013, a $2.1 billion play from Philips International and two separate bids from Thor Equities LLC, among others.
A New York appeals court also sided with Malkin Holdings in February, affirming that members of an investor group challenging the roll-up plan and IPO were not members of the limited liability company that owns the building.
The investor plaintiffs are represented by Richard I. Janvey of Diamond McCarthy LLP and John W. Griggs and Debra B. Adler of Griggs & Adler PC.
Counsel information for the managers was not immediately available.
The suit is Emil Shasha et al. v. Peter L. Malkin et al., case number 14-cv-09989, in the U.S. District Court for the Southern District of New York.
--Additional reporting by Benjamin Horney and Karlee Weinmann. Editing by Katherine Rautenberg.
