07/21/2016Thursday, July 21, 2016
6:00 PM
City of Clearwater
City Hall
112 S. Osceola Avenue
Clearwater, FL 33756
Council Chambers
Pension Trustees
Meeting Agenda
July 21, 2016Pension Trustees Meeting Agenda
1. Call To Order
2. Approval of Minutes
2.1 Approve the minutes of the June 13, 2016 Pension Trustees Meeting as
submitted in written summation by the City Clerk.
3. Citizens to be Heard Regarding Items Not on the Agenda
4. New Business Items
4.1 Approve the new hires for acceptance into the Pension Plan as listed.
4.2 Approve the following request of employees Thomas Carrick, Planning and
Development Department, John Fellenbaum, Police Department, Ann
Galluccio, Library Department, Joanne Hilbert, Police Department, Dina Hyson,
Human Resources Department, Danny Jones, Fire Department, and Mark
Smyth, Fire Department for a regular pension as provided by Sections 2.416
and 2.424 of the Employees’ Pension Plan.
4.3 Approve the City of Clearwater Employees’ Pension Plan as lead plaintiff in
litigation against CBL and Associates Properties, Inc. regarding investment
losses to the Plan; retain Kessler Topaz Meltzer and Check, LLP as legal
counsel in this regard and authorize staff to negotiate a retainer agreement
with Kessler Topaz Meltzer and Check, LLP.
5. Adjourn
Page 2 City of Clearwater Printed on 7/14/2016
Cover Memo
City of Clearwater City Hall
112 S. Osceola Avenue
Clearwater, FL 33756
File Number: ID#16-2556
Agenda Date: 7/21/2016 Status: Agenda ReadyVersion: 1
File Type: MinutesIn Control: Pension Trustees
Agenda Number: 2.1
SUBJECT/RECOMMENDATION:
Approve the minutes of the June 13, 2016 Pension Trustees Meeting as submitted in written
summation by the City Clerk.
SUMMARY:
APPROPRIATION CODE AND AMOUNT:
USE OF RESERVE FUNDS:
Page 1 City of Clearwater Printed on 7/14/2016
Pension Trustees Meeting Minutes June 13, 2016
City of Clearwater
City Hall
112 S. Osceola Avenue
Clearwater, FL 33756
Meeting Minutes
Monday, June 13, 2016
1:00 PM
Council Chambers
Pension Trustees
Page 1 City of Clearwater Draft
Pension Trustees Meeting Minutes June 13, 2016
Roll Call
Present 5 - Chair George N. Cretekos, Trustee Doreen Caudell, Trustee Bob
Cundiff, Trustee Hoyt Hamilton, and Trustee Bill Jonson
Also Present – William B. Horne – City Manager, Jill Silverboard – Assistant City
Manager, Pamela K. Akin – City Attorney, Rosemarie Call – City
Clerk, Nicole Sprague – Official Records and Legislative Services
Coordinator
To provide continui ty for research, items are listed in agenda order although not
ne cessarily discussed in that order.
Unapproved
1. Call To Order – Chair Cretekos
The meeting was called to order at 1:44 p.m. at City Hall.
2. Approval of Minutes
2.1 Approve the minutes of the May 16, 2016 Pension Trustees Meeting as submitted in
written summation by the City Clerk.
Trustee Jonson moved to approve the minutes of the May 16, 2016
Pension Trustees Meeting as submitted in written summation by
the City Clerk. The motion was duly seconded and carried
unanimously.
3. Citizens to be Heard Regarding Items Not on the Agenda – None.
4. New Business Items
4.1 Approve the new hires for acceptance into the Pension Plan as listed.
Name/Job Classification/Department Pension Eligibility Date
Jenae Swann */Recreation Leader/Parks and Recreation 04/02/2016
Ernesto Vildostegui **/Wastewater Treatment Plant Operator Trainee/Public Utilities 04/02/2016
Marilyn John/Librarian II/Library 04/04/2016
Jason Alber/Drafting & Mapping Technician/Engineering 04/04/2016
Lisa Weber/Accounting Technician/Gas Department 04/04/2016
John San Antonio/Fleet Mechanic/General Services 04/04/2016
Kelsey Viars/Police Officer/Police Department 04/18/2016 Page 2 City of Clearwater Draft
Pension Trustees Meeting Minutes June 13, 2016 Langston Woodie/Police Officer/Police Department 04/18/2016
Matthew Prianciani/Police Officer/Police Department 04/18/2016
Kyle McCall/Police Communications Operator Trainee/Police Department 04/18/2016
Nicholas Lawn/Economic Development Specialist/Economic Development & Housing 04/18/2016
Matthew Fretwell/Field Service Representative I/Customer Service 04/18/2016
Rohan Thomas/Stormwater Technician I/Engineering 04/18/2016
Cody Foster/Gas Technician I/Gas Department 04/18/2016
Brett Jennings ***/Gas Technician I/Gas Department 04/18/2016
Phillip Greene/Gas Technician I/Gas Department 04/18/2016
Kyle Lantz/Systems Analyst/Information Technology 04/18/2016
Dominic Sharp ****/Solid Waste Worker/Solid Waste 04/18/2016
Dale Evans/Parks Service Technician I/Parks and Recreation 04/18/2016
* Jenae Swann was employed in a seasonal position from 05/30/2015 to 01/08/2016, and then rehired into a part time position on 01/09/2016. She was hired into a full time full time position on 04/02/2016 and will be eligible for pension as of 04/02/2016. ** Ernesto Vildostegui was employed in a seasonal part-time positions from 03/06/2011 to 04/05/2012, 05/08/2012 to 11/30/2012, and 07/13/2015 to 11/27/2015. He was employed in a part time position from 11/28/2015 to 04/01/2016 and then hired into a full time position on 04/02/2016. He will be eligible for pension as of 04/02/2016. *** Brett Jennings was previously employed with the City of Clearwater. He was initially in a temporary position from 11/23/2009 to 02/28/2010, and was then hired into a full time position 03/01/2010. He resigned effective 08/17/2012, and was rehired 04/18/2016. He is eligible for pension as of 04/18/2016. **** Dominic Sharp was employed in a temporary position from 02/22/2016 to 04/17/2016. He was hired into a full time full time position on 04/18/2016 and will be eligible for pension as of 04/18/2016.
Trustee Caudell moved to approve the new hires for acceptance
into the Pension Plan as listed. The motion was duly seconded and
carried unanimously.
4.2 Approve the following request of employees Gary Kepner, Solid Waste General
Services Department and Shari Lepper, Human Resources Department, to vest their
pensions as provided by Section 2.419 of the Employees’ Pension Plan.
Gary Kepner, Solid Waste Supervisor I, Solid Waste General Services
Department, was employed by the City on October 13, 1997, and began
participating in the Pension Plan on that date. Mr. Kepner terminated from city
employment on April 9, 2016.
Shari Lepper, Human Resources Office Assistant, Human Resources
Department, was employed by the City on June 16, 2003, and began
participating in the Pension Plan on that date. Ms. Lepper changed status
from full-time to part-time on October 4, 2014.
The Employees’ Pension Plan provides that should an employee cease to be
an employee of the City of Clearwater or change status from full-time to
Page 3 City of Clearwater Draft
Pension Trustees Meeting Minutes June 13, 2016
part-time after completing ten or more years of creditable service (pension
participation), such employee shall acquire a vested interest in the retirement
benefits. Vested pension payments commence on the first of the month
following the month in which the employee normally would have been eligible
for retirement.
Section 2.416 provides for normal retirement eligibility for non-hazardous duty
employees hired prior to the effective date of this reinstatement (January 1,
2013), a member shall be eligible for retirement following the earlier of the date
on which a participant has reached the age of fifty-five years and completed
twenty years of credited service; the date on which a participant has reached
age sixty-five years and completed ten years of credited service; or the date on
which a member has completed thirty years of service regardless of age. For
non-hazardous duty employees hired on or after the effective date of this
restatement, a member shall be eligible for retirement following the earlier of
the date on which a participant has reached the age of sixty years and
completed twenty-five years of credited service; or the date on which a
participant has reached the age of sixty-five years and completed ten years of
credited service. Mr. Kepner will meet the non-hazardous duty criteria and
begin collecting a pension in November 2019. Ms. Lepper will meet the
non-hazardous duty criteria and begin collecting a pension in July 2023.
Section 2.416 provides for normal retirement eligibility for hazardous duty
employees, a member shall be eligible for retirement following the earlier of the
date on which the participant has completed twenty years of credited service
regardless of age, or the date on which the participant has reached fifty-five
years and completed ten years of credited service.
Trustee Cundiff moved to approve the following request of
employees Gary Kepner, Solid Waste General Services Department
and Shari Lepper, Human Resources Department, to vest their
pensions as provided by Section 2.419 of the Employees’ Pension
Plan. The motion was duly seconded and carried unanimously.
4.3 Approve changes to the City of Clearwater Employees’ Pension Statement of
Investment Objectives and Guidelines (Investment Policy) to add scrutinized
companies restrictions required by Florida Statutes; update portfolio asset allocation
limits; update investment performance benchmark indexes and benchmarks; increase
allowable leverage for real estate money managers; and to make grammatical and
other minor changes as recommended by the Plan’s Investment Committee.
The Pension Plan’s Investment Policy was reviewed by the Plan’s investment
Page 4 City of Clearwater Draft
Pension Trustees Meeting Minutes June 13, 2016
consultant, CapTrust; the Plan’s pension attorney, Klausner, Kaufman, Jensen
& Levinson; and the Plan’s Investment Committee for necessary revisions.
A significant change to the policy is the addition of “scrutinized companies”
restrictions per Florida Statutes Section 215.473(t), as recommended by the
pension attorney.
Updates have also been made to several performance measurement indexes
and asset allocation limits.
The average debt leverage limit for real estate money managers has been
increased from 40% to 50% to reflect the recent addition of core plus real
estate as an investment category.
Grammatical corrections and other minor changes have been made upon
recommendations of the investment consultant, pension attorney, and Pension
Investment Committee.
Trustee Hamilton moved to approve changes to the City of
Clearwater Employees’ Pension Statement of Investment
Objectives and Guidelines (Investment Policy) to add scrutinized
companies restrictions required by Florida Statutes; update
portfolio asset allocation limits; update investment performance
benchmark indexes and benchmarks; increase allowable leverage
for real estate money managers; and to make grammatical and
other minor changes as recommended by the Plan’s Investment
Committee. The motion was duly seconded and carried
unanimously.
5. Adjourn
The meeting adjourned at 1:48 p.m.
Chair
Employees’ Pension Plan Trustees
Attest
City Clerk
Page 5 City of Clearwater Draft
Cover Memo
City of Clearwater City Hall
112 S. Osceola Avenue
Clearwater, FL 33756
File Number: ID#16-2502
Agenda Date: 7/21/2016 Status: Agenda ReadyVersion: 2
File Type: Action ItemIn Control: Pension Trustees
Agenda Number: 4.1
SUBJECT/RECOMMENDATION:
Approve the new hires for acceptance into the Pension Plan as listed.
SUMMARY:
Name/Job Classification/Department Pension Eligibility Date
Theresa Hughes, Field Service Representative I, Customer Service 05/02/2016
Christopher Bennett, Solid Waste Equipment Operator, Solid Waste 05/02/2016
Michael Dominguez, Solid Waste Equipment Operator, Solid Waste 05/02/2016
Lloyd Briscoe, Solid Waste Equipment Operator, Solid Waste 05/02/2016
Andrea Moreira, Aquatic Programmer, Parks and Recreation 05/02/2016
Sharon Hollifield *, Code Enforcement Inspector, Planning and Dev. 05/02/2016
Michael Robinson **, Librarian I, Library 05/15/2016
Nathan Huffman, Public Utilities Technician I, Public Utilities 05/16/2016
Jasia Shaver, Accounting Clerk, Finance 05/16/2016
Anelise Wilhelm, Senior Systems Programmer, IT 05/16/2016
Zane Liebrum, Parks Service Technician I, Parks and Recreation 05/16/2016
Michael Bryant ***, Parking Technician, Engineering 05/16/2016
* Sharon Hollifield was employed in a part time position from 02/08/2016 to 05/01/2016, and
then hired into a full time position on 05/02/2016. She will be eligible for pension as of
05/02/2016.
** Michael Robinson was employed in a part time position from 11/18/2013 to 05/14/2016, and
then hired into a full time position on 05/15/2016. He will be eligible for pension as of
05/15/2016.
** Michael Bryant was employed in a part time position from 02/08/2016 to 05/13/2016, and
then hired into a full time position on 05/14/2016. He will be eligible for pension as of
05/14/2016.
APPROPRIATION CODE AND AMOUNT:
N/A
USE OF RESERVE FUNDS:
N/A
Page 1 City of Clearwater Printed on 7/14/2016
Interoffice Correspondence Sheet
TO:Pension Advisory Committee
FROM:Joseph Roseto, Human Resources Director
SUBJECT:Recommendation for Acceptance into Pension Plan
DATE:
Subject/Recommendation: Recommend approval of the new hires for acceptance into the Pension Plan as listed.
Name Job Classification Department Pension
Eligibility Date
Theresa Hughes Field Service Representative I Customer Service 05/02/2016
Christopher Bennett Solid Waste Equipment Operator Solid Waste 05/02/2016
Michael Dominguez Solid Waste Equipment Operator Solid Waste 05/02/2016
Lloyd Briscoe Solid Waste Equipment Operator Solid Waste 05/02/2016
Andrea Moreira Aquatic Programmer Parks and Recreation 05/02/2016
Sharon Hollifield *Code Enforcement Inspector Planning and Development 05/02/2016
Michael Robinson **Librarian I Library 05/15/2016
Nathan Huffman Public Utilities Technician I Public Utilities 05/16/2016
Jasia Shaver Accounting Clerk Finance 05/16/2016
Anelise Wilhelm Senior Systems Programmer Information Technology 05/16/2016
Zane Liebrum Parks Service Technician I Parks and Recreation 05/16/2016
Michael Bryant ***Parking Technician Engineering 05/16/2016
* Sharon Hollifield was employed in a part time position from 02/08/2016 to 05/01/2016, and then hired into a full time position on
05/02/2016. She will be eligible for pension as of 05/02/2016.
** Michael Robinson was employed in a part time position from 11/18/2013 to 05/14/2016, and then hired into a full time position on
05/15/2016. He will be eligible for pension as of 05/15/2016.
** Michael Bryant was employed in a part time position from 02/08/2016 to 05/13/2016, and then hired into a full time position on
05/14/2016. He will be eligible for pension as of 05/14/2016.
Cover Memo
City of Clearwater City Hall
112 S. Osceola Avenue
Clearwater, FL 33756
File Number: ID#16-2506
Agenda Date: 7/21/2016 Status: Agenda ReadyVersion: 2
File Type: Action ItemIn Control: Pension Trustees
Agenda Number: 4.2
SUBJECT/RECOMMENDATION:
Approve the following request of employees Thomas Carrick, Planning and Development
Department, John Fellenbaum, Police Department, Ann Galluccio, Library Department,
Joanne Hilbert, Police Department, Dina Hyson, Human Resources Department, Danny
Jones, Fire Department, and Mark Smyth, Fire Department for a regular pension as provided
by Sections 2.416 and 2.424 of the Employees’ Pension Plan.
SUMMARY:
Thomas Carrick, Assist Building Official, Planning and Development Department, was
employed by the City on April 15, 1996, and his pension service credit is effective on that date .
His pension will be effective June 1, 2016. Based on an average salary of approximately
$62,715.85 over the past five years, the formula for computing regular pensions and Mr .
Carrick’s selection of the Life Annuity with a 10% Partial Lump Sum, this pension benefit will
be approximately $31,229.64 annually.
John Fellenbaum, Police Officer, Police Department, was employed by the City on July 8,
1996, and his pension service credit is effective on that date. His pension will be effective
August 1, 2016. Based on an average salary of approximately $89,017.88 over the past five
years, the formula for computing regular pensions and Mr. Fellenbaum’s selection of the Joint
and Survivor Annuity with a 10% Partial Lump Sum, this pension benefit will be approximately
$44,070.00 annually.
Ann Galluccio, Library Assistant, Library Department, was employed by the City on January
27, 2003, and her pension service credit is effective on that date. Her pension will be effective
August 1, 2016. Based on an average salary of approximately $26,159.29 over the past five
years, the formula for computing regular pensions and Ms. Galluccio’s selection of the Life
Annuity, this pension benefit will be approximately $9,673.56 annually.
Joanne Hilbert, Police Communication Operator, Police Department, was employed by the
City on December 12, 1988, and her pension service credit is effective on that date. Her
pension will be effective July 1, 2016. Based on an average salary of approximately
$54,360.85 over the past five years, the formula for computing regular pensions and Ms .
Hilbert’s selection of the 100% Joint and Survivor Annuity, this pension benefit will be
approximately $37,843.80 annually.
Dina Hyson, Human Resources Manager, Human Resources Department, was employed by
the City on October 9, 1992, and her pension service credit is effective on that date. Her
pension will be effective August 1, 2016. Based on an average salary of approximately
$78,290.95 over the past five years, the formula for computing regular pensions and Ms .
Page 1 City of Clearwater Printed on 7/14/2016
File Number: ID#16-2506
Hyson’s selection of the 10 Year Certain and Life Annuity, this pension benefit will be
approximately $50,631.60 annually.
Danny Jones, Fire Assistant Chief, Fire Department, was employed by the City on May 4,
1987, and his pension service credit is effective on that date. His pension will be effective
June 1, 2016. Based on an average salary of approximately $113,486.65 over the past five
years, the formula for computing regular pensions and Mr. Jones’ selection of the 100% Joint
and Survivor Annuity, this pension benefit will be approximately $88,185.24 annually.
Mark Smyth, Fire Lieutenant, Fire Department, was employed by the City on April 1, 1981, and
his pension service credit is effective on that date. His pension will be effective June 1, 2016.
Based on an average salary of approximately $82,257.01 over the past five years, the formula
for computing regular pensions and Mr. Smyth’s selection of the 100% Joint and Survivor
Annuity, this pension benefit will be approximately $77,508.96 annually.
Section 2.416 provides for normal retirement eligibility for non -hazardous duty employees
hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be
eligible for retirement following the earlier of the date on which a participant has reached the
age of fifty-five years and completed twenty years of credited service; the date on which a
participant has reached age sixty -five years and completed ten years of credited service; or
the date on which a member has completed thirty years of service regardless of age. For
non-hazardous duty employees hired on or after the effective date of this restatement, a
member shall be eligible for retirement following the earlier of the date on which a participant
has reached the age of sixty years and completed twenty -five years of credited service; or the
date on which a participant has reached the age of sixty -five years and completed ten years of
credited service. Mr. Carrick, Ms. Galluccio, Ms. Hilbert and Ms. Hyson have met the
non-hazardous duty criteria.
Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a
member shall be eligible for retirement following the earlier of the date on which the participant
has completed twenty years of credited service regardless of age, or the date on which the
participant has reached fifty -five years and completed ten years of credited service. Mr.
Fellenbaum, Mr. Jones and Mr. Smyth have met the hazardous duty criteria.
APPROPRIATION CODE AND AMOUNT:
N/A
USE OF RESERVE FUNDS:
N/A
Page 2 City of Clearwater Printed on 7/14/2016
Cover Memo
City of Clearwater City Hall
112 S. Osceola Avenue
Clearwater, FL 33756
File Number: ID#16-2573
Agenda Date: 7/21/2016 Status: Agenda ReadyVersion: 1
File Type: Action ItemIn Control: Pension Trustees
Agenda Number: 4.3
SUBJECT/RECOMMENDATION:
Approve the City of Clearwater Employees’ Pension Plan as lead plaintiff in litigation against
CBL and Associates Properties, Inc. regarding investment losses to the Plan; retain Kessler
Topaz Meltzer and Check, LLP as legal counsel in this regard and authorize staff to negotiate
a retainer agreement with Kessler Topaz Meltzer and Check, LLP.
SUMMARY:
In December 2011, the Pension Trustees approved a contract retaining Kessler Topaz Meltzer
& Check, LLP (Kessler) to provide monitoring of securities in the Plan ’s investment portfolio in
connection with potential claims for damages suffered by the Pension Plan. There is no cost
to the plan for the ongoing monitoring services.
Kessler has recommended that the Pension Plan apply for lead plaintiff status in a litigation
action against CBL & Associates Properties, Inc (CBL), a Delaware corporation headquartered
in Chattanooga, Tennessee. CBL operates as a real estate investment trust (REIT) and owns
147 properties, including 91 regional malls/open-air centers, in 31 states.
A May 24, 2016 report in the Wall Street Journal (WSJ) disclosed that CBL is under
investigation by the Federal Bureau of Investigation (FBI) and the U.S. Securities and
Exchange Commission (SEC) in connection with providing false information to lenders. The
WSJ also reported that FBI and SEC officials are questioning CBL ’s relationship with Senator
Robert Corker, who has made millions of dollars in profits trading in CBL ’s stock. On this
news, the price of CBL ’s stock experience a single day price decline of 8.3%. The City of
Clearwater Employees’ Pension Plan sustained estimated losses of $616,000.
Pursuing lead plaintiff status will serve to ensure the Trustees and Plan administrators are
fulfilling their fiduciary responsibilities, while conveying a clear message to the public and
corporate world that the City is doing its due diligence in protecting Plan assets.
The retainer agreement will stipulate that the cost of litigation will result in no out -of-pocket
costs to the Plan, with legal fees paid on a contingency basis only.
The pension plan’s attorneys, Klausner, Kaufman, Jensen, & Levinson, as well as the plan ’s
investment consultant, CapTrust, concur with pursuing lead plaintiff status.
APPROPRIATION CODE AND AMOUNT:
N/A
Page 1 City of Clearwater Printed on 7/14/2016
File Number: ID#16-2573
Page 2 City of Clearwater Printed on 7/14/2016
MEMORANDUM: PRIVILEGED ATTORNEY/CLIENT
COMMUNICATION AND ATTORNEY WORK PRODUCT
TO The Employees’ Pension Plan of the City of
Clearwater, Florida
FROM Darren J. Check, Esquire
Sean M. Handler, Esquire
Naumon A. Amjed, Esquire
Geoffrey C. Jarvis, Esquire
Melissa L. Troutner, Esquire
DATE June 26, 2016
RE CBL Securities Litigation Memorandum
Approximate Losses Suffered by
The Employees’ Pension Plan of the City of Clearwater, Florida:
($793,434.62) (FIFO);($616,369.43) (LIFO)
This memorandum analyzes claims under the federal securities laws against CBL & Associates
Properties, Inc. (“CBL” or the “Company”) for allegedly inflating the Company’s “rental income and
occupancy rates for its properties when providing those figures to banks” in order to obtain financing.
The potential claims are based upon a May 24, 2016 report in The Wall Street Journal (“WSJ”) disclosing
that CBL is under investigation by the Fede ral Bureau of Investigation (“FBI”) and the U.S. Securities
Exchange Commission (“SEC”) in connection with providing false information to lenders.1 The WSJ
also reported that FBI and SEC officials are questioning the Company’s relationship with Senator Ro bert
Corker who has made millions of dollars in profits trading in the Company’s stock.2 On this news, the
price of Company stock declined $0.86 per share, or 8.3% on heavy volume, from a close of $10.26 per
share on May 24, 2016, to close at $9.40 per sh are on May 25, 2016. This single -day decline eliminated
nearly $150 million from the Company’s market capitalization value. The Company initially denied
knowledge of any FBI or SEC investigations, but more recently has claimed that it only learned of the
1 Brody Mullins and Aruna Viswanatha, U.S. Probes Real-Estate Firm With Ties to Sen. Bob Corker, THE WALL
STREET JOURNAL, May 24, 2016.
2 Id.
DATE CASE FILED May 27, 2016
LEAD PLAINTIFF
DEADLINE July 26, 2016
CLASS PERIOD August 9,2011 –
May 24, 2016
JURISDICTION
United States District
Court, Eastern District of
Tennessee
JUDGE The Honorable Thomas
W. Phillips
ii
investigations after the publication of the WSJ report and that the investigations relate to four loans in
2011-2012.3
To date, at least three class action lawsuits have been filed against CBL and certain of the
Company’s officers (the “Individual Defenda nts”) in the United States District Court for the Eastern
District of Tennessee alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 (the “Exchange Act”) on behalf of all persons who purchased or otherwise acquired CBL com mon
stock. The longest pled period is August 9, 2011 to May 24, 2016 (the “Class Period”).4
Based on your transactions in CBL common stock over the Class Period, we have estimated that
you sustained a loss of $793,434.62 under a first-in-first-out (“FIFO”) analysis and loss of $616,369.43
under a last-in-first-out (“LIFO”) analysis. We believe a portion of this loss may be recoverable under the
federal securities laws and recommend that you move for appointment as lead plaintiff in the action. The
deadline to seek appointment is July 26, 2016.
3 See CBL & Associates Properties, Inc. Provides Update on Recent Financial Allegations and Anticipates Near
Term Resolution, THE BUSINESS WIRE, June 13, 2016.
4 See French v. CBL & Associates Properties, Inc., et al., No. 1:16-cv-00165 (E.D. Tenn. filed May 27, 2016), The
Allan J. and Sherry R. Potts Living Trust v. CBL & Associates Properties, Inc., et al., No. 1:16-cv-00195 (E.D.
Tenn. filed June 9, 2016) and International Union of Painters & Allied Trades District Council No. 35 Pension Plan
v. CBL & Associates Properties, Inc., et al., No. 1:16-cv-00248 (E.D. Tenn. filed June 23, 2016). The first two
actions are currently pending before the Hon. Thomas W. Phillips. The third action remains unassigned to date and,
in addition to the Defendants discussed herein, asserts claims against CBL & Associates Limited Partnership—the
operating partnership through which CBL conducts business and obtains financing. The Individual Defendants
include Stephen D. Lebovitz (the Company’s President and Chief Executive Officer), Farzana K. Mitchell (the
Company’s current Executive Vice President, Chief Financial Officer) and John N. Foy (the Company’s former
Chief Financial Officer, Treasurer and Secretary).
iii
TABLE OF CONTENTS
Page
FACTUAL BACKGROUND ...............................................................................................................................1
I.The Company ........................................................................................................................1
II.Defendants Inflate Occupancy Rates and Rental Incomes to Secure Financing ...................2
III.The Campaign for Accountability (“CfA”) Alleges Insider Tra ding in CBL Stock....................7
IV.WSJ Reveals FBI and SEC Investigations of the Company .....................................................8
V.CBL Confirms the Company is Under SEC Investigation........................................................8
LEGAL ANALYSIS ............................................................................................................................................9
I.Section 10(b) of the exchange act.........................................................................................9
A.False and Misleading Statements................................................................................9
B.Scienter......................................................................................................................11
C.Loss Causation ...........................................................................................................13
II.Section 20(a) of the Exchange Act ......................................................................................13
CONCLUSION ...............................................................................................................................................14
FACTUAL BACKGROUND
I.THE COMPANY
CBL & Associates Properties, Inc. (“CBL” or the “Company”), a Delaware corporation
headquartered in Chattanooga, Tennessee, is one of largest and most active owners and developers of
malls and shopping centers in the United States. The Company operates as a real estate investment trust
(“REIT”) and owns, holds interests in, or manages 147 properties, including 91 regional malls/open-air
centers. The properties are located in 31 states and total 84.3 million square feet, including 8.6 million
square feet of non-owned shopping centers managed for third parties. CBL describes itself as “one of the
largest and most experienced owners, developers and managers of malls and shopping centers in the
United States.”5
A portion of CBL’s growth strategy is based on the “acquisition of regional malls,” which
requires the Company to secure financing at favorable interest rates.6 In conducting its business, CBL is
“significantly dependent upon external financing to fund the growth of [its] business and ensure that [it]
meet[s] [its] debt servicing requirements.”7 Moreover, the Company has acknowledged that its “access to
financing depends on the willingness of lending institutions to grant credit to [the Company] and
conditions in the capital markets in general.”8
CBL’s common stock trades on the New York Stock Exchange (“NYSE”) under the ticker
“CBL.” The Company’s market capitalization value reached a Class Period high of $3.638 billion on
August 14, 2013, before falling to nearly $1.605 billion on May 25, 2016. The Company’s market
capitalization remains depressed at approximately $1.7 billion as of June 24, 2016. The following chart
illustrates the movement of the Company’s stock price over the Class Period (August 9, 2011 through
May 24, 2016):
5 CBL & Associates Properties Inc. website, http://www.cblproperties.com/cbl.nsf/index.html.
6 Id.; CBL & Associates Properties, Inc., Form 10-K filed December 31, 2015.
7 See CBL & Associates Properties, Inc., Form 10-K filed December 31, 2015.
8 Id.
2
II.DEFENDANTS INFLATE OCCUPANCY RATES AND RENTAL INCOMES TO
SECURE FINANCING
The Class Period begins on August 9, 2011 to coincide with the Company’s filing of its quarterly
financial report for the period ended June 30, 2011.9 In its third-quarter 2011 report, CBL reported
increased cash flows “primarily attributable to higher rental income as a result of increased occupanc y
rates and rental rates compared to the prior year period.”10 The Company also discussed the importance
of financing to the success of its operations:
We are significantly dependent upon external financing to fund the
growth of our business and ensure tha t we meet our debt servicing
requirements. Our access to financing depends on the willingness of
lending institutions to grant credit to us and conditions in the capital
markets in general.11
Subsequent statements reassured investors about the Company’s acc ess to credit. For example,
during an investor conference call on November 2, 2011, Defendant Foy stated that the Company’s
“coverage ratios [were] very sound,” that it was “experiencing very strong demand from institutional
lenders and banks for refinanc ing opportunities,” and that it was “getting new quotes on upcoming
maturities from a variety of lending sources.” CBL followed -up on its positive assurances by providing
investors with specific examples of financing arrangements. For example, according to CBL’s 2011
Annual Report, CBL obtained the following non -recourse financing in 2011:
a $140.0 million ten-year non-recourse mortgage loan secured by Cross Creek
Mall in Fayetteville, NC, which bears a fixed interest rate of 4.54%;
a $60.0 million ten -year non-recourse commercial mortgage -backed securities
(“CMBS”) loan with a fixed interest rate of 5.73% secured by The Outlet Shoppes
at Oklahoma City in Oklahoma City, OK;
two ten-year, non-recourse mortgage loans totaling $128.8 million, including a
$50.8 million loan secured by Alamance Crossing in Burlington, NC and a $78.0
million loan secured by Asheville Mall in Asheville, NC, with interest at fixed
rates of 5.83% and 5.80%, respectively;12
two ten-year, non-recourse mortgage loans totaling $277.0 mi llion, including a
$185.0 million loan secured by Fayette Mall in Lexington, KY and a $92.0
million loan secured by Mid Rivers Mall in St. Charles, MO, with interest at fixed
rates of 5.42% and 5.88%, respectively;13
9 See CBL & Associates Properties, Inc., Form 10-Q filed August 9, 2011.
10 Id.
11 Id.
12 Proceeds from these loans “were used to repay existing loans with principal balances of $51.8 million and $61.3
million, respectively, and to pay down our $525.0 million secured credit facility.” CBL & Associates Properties,
Inc., Form 10-K filed February 29, 2012.
13 Proceeds from these loans “were used to repay existing loans with principal balances of $84.7 million and $74.7
million, respectively, and to pay down our $525.0 million and $105.0 million secured credit facilities.” Id.
3
five separate non-recourse mortgage loans totaling $268.9 million, including a
$95.0 million loan secured by Parkdale Mall and Parkdale Crossing in Beaumont,
TX; a $99.4 million loan secured by Park Plaza in Little Rock, AR; a $44.1
million loan secured by EastGate Mall in Cincinnati, OH; a $19 .8 million loan
secured by Wausau Center in Wausau, WI; and a $10.6 million loan secured by
Hamilton Crossing in Chattanooga, TN, with interest at a weighted average fixed
rate of 5.64%.14
See CBL &Associates Properties, Inc., Form 10 -K filed February 29, 2012.
According to the Company’s 2012 Annual Report, CBL obtained the following non -recourse
financing in 2012:
five 10-year non-recourse CMBS loans totaling $342.2 million, secured by
WestGate Mall in Spartanburg, SC; Southpark Mall in Colonial Heights, VA;
Jefferson Mall in Louisville, KY; Fashion Square Mall in Saginaw, MI and Arbor
Place in Douglasville, GA, with a total weighted average interest rate of
4.946%;15
a 10-year non-recourse loan totaling $22.0 million secured by CBL Centers I and
II in Chattanooga, TN, at a fixed interest rate of 5.00%;16
a $73.0 million 10-year non-recourse CMBS loan secured by Northwoods Mall in
Charleston, SC, at a fixed interest rate of 5.075%.17
See CBL & Associates Properties, Inc., Form 10 -K filed March 1, 2013.
In total, CBL obtained 18 non -recourse loans collectively valued at approximately $1.312 billion
in 2011 and 2012 and used the proceeds from those loans to pay down existing debt. The SEC is
purportedly investigating whether the Company provided falsified information to banks in order to secure
4 of those 18 loans.
As recently admitted by CBL, the SEC is investigating at least four non -recourse loans obtained
by the Company in 2011 and 2012. The tim e period being investigated by the SEC coincides with a
period of growth for CBL. For example, CBL’s 2011 Annual Report stated that “[l]easing activity
continued to improve throughout the year, as reflected in [the Company’s] occupancy increases” and that
CBL “posted a 120 basis point increase in the occupancy rate for [its] total portfolio, compared to the
prior year, with stabilized mall occupancy improving by 100 basis points over the prior year.”18 The
14 Proceeds from these loans, as well as four partial-recourse loans “were used predominantly to pay down the
outstanding balance of our $520.0 million secured credit facility. Eight of the new loans were secured with
properties previously used as collateral to secure the $520.0 million credit facility.” Id.
15 Proceeds from these loans “were used to pay down our credit facilities and to retire an existing loan with a balance
of $30.8 million secured by Southpark Mall.” CBL & Associates Properties, Inc., Form 10-K filed March 1, 2013.
16 Proceeds from this loan “was used to pay down our credit facilities, which had been used in April 2012 and
February 2012 to retire the balances on the maturing loans on CBL Centers II and I which had principal outstanding
balances of $9.1 million and $12.8 million, respectively.” Id.
17 Proceeds from this loan “were used to reduce outstanding balances on our credit facilities.” Id.
18 CBL & Associates Properties, Inc., Form 10-K filed February 29, 2012.
4
Company further assured investors that “[it] antic ipate[s] an increase in occupancy levels ranging from
flat to 50 basis points compared with the prior year” at December 31, 2012.19 CBL’s positive
performance continued into 2012 when it reported that “[o]ccupancy increased 100 basis points in 2012 to
94.6% across [its] total portfolio as compared to the prior year and [the Company] signed more than 6.1
million square feet of leases.”20 In addition, CBL stated that, in 2012, stabilized mall occupancy
“improved 30 basis points to 94.5% as compared to the pri or year” and projected “occupancy
improvements of 25 to 50 basis points” for 2013 “as compared to 2012 for the total portfolio.”21 With
regard to stabilized mall leasing rental rates in 2012, CBL stated that “on a same space basis, rental rates
were signed at an average increase of 8.4% from the prior gross rent per square foot for new and renewal
leases” and that “[d]emand from new and existing tenants created ongoing improvement in [the
Company’s] leasing spreads for both new and renewal leases across [it s] portfolio.”22 The Company
projected “continued improvements in rental rates during 2013 as retailers seek out space in [its] market -
dominant Properties and new supply remains constricted.”23 Moreover, CBL informed investors that its
“financing strategy centers on positioning [its] balance sheet to achieve an investment grade rating, which
should provide [the Company] with increased flexibility and access to favorable financing options in the
public debt markets.”24
In March 2012, Defendant Lebovitz disc ussed CBL’s financing success at the Citi Global
Property CEO Conference, stating that during 2011, CBL had been “able to close more than $1.2 billion
in financing activity at favorable rates” and that the Company had “retired several . . . loans early to take
advantage of the current favorable interest rate on [its] lines of credit.”25 Lebovitz further claimed that
CBL was “currently in the market with bids for replacement loans and [it was] encouraged by the recent
strengthening of the CMBS market and ant icipate[d] closing new loans later this year and generating
excess proceeds over the prior loan amount.”26 In June 2012, Lebovitz told investors that the Company
had just favorably refinanced four loans, with new ten -year loans raising total proceeds of more than $64
million at a weighted average interest rate of 4.85%, compared with the previous weighted ave rage
interest rate of 6.62%.27
In 2013, CBL continued to assert positive financial results, including that it had reached a
“significant step” in its financing strategy by receiving an investment grade rating giving it more financial
19 Id.
20 CBL & Associates Properties,Inc., Form 10-K filed March 1, 2013.
21 Id.
22 Id.
23 Id.
24 Id.
25 CBL & Associates Properties, Inc., CBL & Associates Properties, Inc. at Citi Global Property CEO Conference-
Final, FD (FAIR DISCLOSURE) WIRE, Mar. 12, 2012.
26 Id.
27 CBL & Associates Properties, Inc., CBL & Associates Properties, Inc. at REITWeek: NAREIT’s Investor Forum-
Final, FD (FAIR DISCLOSURE) WIRE, June 12, 2012.
5
flexibility and gr eater liquidity.28 The report further asserted it was “continu[ing] to achieve positive
results” in leasing and occupancy rates with a momentum of double -digit leasing spreads as both
established and new retailers value space in its properties.29 The Company’s third-quarter 2013 10-Q also
reported cash flows from financing activities.30 With regard to its ability to obtain financing at favorable
rates, CBL stated:
Second quarter 2013 marked the culmination of a significant step in our
financing strategy as we received an investment grade rating in May
2013 of Baa3 with a stable outlook from Moody's. This was followed by
an Issuer Default Rating (“IDR”) of BBB -with a stable outlook and a
senior unsecured notes rating of BBB -from Fitch Ratings (“Fitch”) in
July 2013. These investment grade ratings allow us to access the public
debt markets and provide more financing flexibility. We were also able
to lower the interest rates on our credit facilities as a result of our
investment grade rating.31
CBL expounded upon these assertions on March 3, 2014, when it released its annual financial
report for the year ended December 31, 2013.32 Specifically, the Company highlighted 2013 as “a
transformational year as we achieved many of our financing objectives and long -term goals ahead of
schedule.”33 The Company touted its financing activities in 2013, stating it “received two investment
grade ratings” enabling it “to take advantage of favorable market financing.”34 Similarly, CBL boasted
that it “continue[d] to see posi tive leasing spreads and demand from retailers to lease space in [its]
Properties.”35 The Company claimed that “occupancy levels remained at historically high levels” and
many retailers “have announced expansion plans” which will “positively impact [the Co mpany’s] leasing
spreads and occupancy rates.”36
As explained by CBL, these activities were important to gain “access to financing” since the
Company is “significantly dependent upon external financing to fund the growth of [its] business and
ensure that [the Company] meet[s] [its] debt servicing requirements.”37 Moreover, CBL stated that its
“access to financing depends on the willingness of lending institutions to grant credit to [the Company]
28 CBL & Associates Properties, Inc., Form 10-Q filed August 8, 2013.
29 Id.
30 Id.
31 Id.
32 See CBL &Associates Properties, Inc., Form 10-K filed March 3, 2014.
33 Id.
34 Id.
35 Id.
36 Id.
37 Id.
6
and conditions in the capital markets in general.”38 Throughout the remainder of the Class Period, CBL
repeated these statements in its annual financial reports, reinforcing to investors the important role
external financing plays in the Company’s financial success.39
In addition, CBL touted its rental income and occ upancy rates and ability to secure financing
when conducting analyst conference calls during the Class Period. For example, in November 2013,
Defendant Lebovitz touted an increase in portfolio occupancy of “80 basis points to 93.8%” and
“significant progress in [the Company’s] goal of accessing the unsecured debt markets as a result of [its]
two investment grade ratings by Moody’s and Fitch.”40 Defendant Lebovitz continued: “[l]ooking back,
we have made tremendous progress in growing occupancy over the pas t few years with a 280 basis point
increase from the 91% occupancy we reported in the third quarter 2010” and noted that “[s]tabilized mall
occupancy increased 40 basis points from the prior year and 80 basis points from the second quarter to
93.4%.”41 On October 29, 2015, Defendant Lebovitz noted that “leasing progress was notable this
quarter,” and “leasing activity and lease spreads remained strong at our properties.”42 Similarly, on April
28, 2016, Defendant Lebovitz stated “[w]e are pleased to generate such strong results . . . and are
encouraged by the overall health and resiliency of our properties,” including that “[o]verall occupancy
increased,” “new lease spreads were excellent,” and “results should improve as we move through the
year.”43 He continued by stating, “[w]hile the financing environment continues to present a challenge we
have found creative workarounds to complete these recent transactions.”44
Despite CBL’s repeated claims of successful increases in occupancy rates and rental income, th e
Company allegedly was falsifying this information on financial statements to banks when applying for
financing arrangements.45
38 Id.
39 See CBL & Associates Properties, Inc., Form 10-K filed March 3, 2014 (“We are significantly dependent upon
external financing to fund the growth of our business and ensure that we meet our debt servicing requirements.”);
CBL & Associates Properties, Inc., Form 10-K filed March 2, 2015 (same); CBL & Associates Properties, Inc.,
Form 10-K filed February 29, 2016 (same).
40 CBL & Associates Properties, Inc., Q3 2013 CBL & Associates Properties Inc. Earnings Conference Call -Final,
FD (FAIR DISCLOSURE)WIRE, November 26, 2013
41 Id.
42 CBL & Associates Properties, Inc., Q3 2015 CBL & Associates Properties Inc. Earnings Call -Final, FD (FAIR
DISCLOSURE)WIRE, October 29, 2015.
43 CBL & Associates Properties, Inc., Q1 2016 CBL & Associates Properties Inc. Earnings Call -Final, FD (FAIR
DISCLOSURE)WIRE, April 28, 2016.
44 Id.
45 See Brody Mullins and Aruna Viswanatha, U.S. Probes Real-Estate Firm With Ties to Sen. Bob Corker, THE
WALL STREET JOURNAL, May 24, 2016.
7
III.THE CAMPAIGN FOR ACCOUNTABILITY (“CFA”) ALLEGES INSIDER TRADING
IN CBL STOCK
In November 2015, a nonprofit watchdog organizati on, CfA, filed a complaint with the SEC and
the Senate Select Committee on Ethics, alleging that Senator Robert Corker (R -TN) engaged in insider
trading using material, non -public information received from an insider for approximately 70 trades he
and his family made in CBL stock between 2007 and 2015.46 Senator Corker has a longstanding
relationship with CBL and the Company’s executives have donated tens of thousands of dollars to his
campaigns.47 According to CfA, “[s]ome of Sen. Corker’s trades of CBL st ock closely preceded
company announcements that led to changes in the stock’s price and seemingly resulted in the senator
making millions of dollars.”48 CfA alleged that Senator Corker’s trades “followed a consistent pattern —
he bought low and sold high,” and “[i]t beggars belief to suggest these trades—netting the senator and his
family millions—were mere coincidences.”49 The CfA complaint details the following suspicious trades
in CBL stock by Senator Corker, which allegedly may have been based on his rece ipt of material, non-
public information from at least one Company employee:
On July 26 and July 27, 2010, Sen. Corker sold his CBL stock in two trades
collectively netting him between $2 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
per share. A week later, it registered a value of $12.55 per share, 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 per 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. Co rker bought another $500,000 -$1 million worth of CBL
stock, this time at about $17.51 per share. CBL’s stock price hit a three -month high
on April 27, 2011 of $18.70 per share. The same day, the senator sold a block of
46 See Dan Stevens, Campaign for Accountability Requests SEC and Ethics Investigation of Sen. Robert Corker (R-
TN) for Insider Trading, CAMPAIGN FOR ACCOUNTABILITY, November 10, 2015.
47 See id.
48 CfA Files SEC and Ethics Complaints Against Sen. Robert Corker (R-TN) for Concealing Lucrative Financial
Holdings, CAMPAIGN FOR ACCOUNTABILITY,March 21, 2016.
49 Matt Pulford, Campaign for Accountability Filed Complaint Against Corker, CAMPAIGN FOR ACCOUNTABILITY,
November 11, 2015.
8
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.50
IV.WSJ REVEALS FBI AND SEC INVESTIGATIONS OF THE COMPANY
Investors first began to learn of CBL’s material misstatements and omissions regarding the
alleged provision of misinformation to lenders on May 24, 2016, when WSJ reported that the Company is
under investigation by both the FBI and SEC for allegedly infla ting CBL’s “rental income and occupancy
rates for its properties when providing those figures to banks” when applying for financing.51 The article
also claimed that FBI and SEC officials have “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.”52
Following this news, CBL’s stock fell by $0.86, or 8.3% on heavy volume, to close at $9.40 on
May 25, 2016. This represented a loss in market capitalization of approximately $150 million.
On May 25, 2016, CBL responded to WSJ’s allegations by stating “[w]e believe these allegations
to be completely baseless and take very seriously any questions re garding our accounting and financial
practices.”53 CBL further stated “[w]e strongly deny and will seek to understand the origin of these
allegations . . . our company operates with the utmost integrity and holds itself to the highest ethical
standards. We have stringent policies and procedures in place to ensure all of our accounting and
financial processes and reporting comply with applicable laws, rules and regulations.”54
V.CBL CONFIRMS THE COMPANY IS UNDER SEC INVESTIGATION
On June 13, 2016, CBL confir med that it is the target of an SEC investigation, stating that
regulators are “conducting an investigation limited to four specific non -recourse secured loans originated
in 2011 and 2012.”55 The Company further stated “the purpose of this review is to ens ure the information
provided to lenders regarding lease status reports, revenues and expected revenues, did not materially
vary from the company’s financial statements.”56
Despite its recent confirmation of the SEC investigation, CBL continues to deny wro ngdoing,
stating that the Company “operates with the utmost integrity and holds itself to the highest ethical
50 Dan Stevens, Campaign for Accountability Requests SEC and Ethics Investigation of Sen. Robert Corker (R-TN)
for Insider Trading, CAMPAIGN FOR ACCOUNTABILITY, November 10, 2015.
51 Id.
52 Id.
53 See CBL & Associates Properties, Inc. Addresses Baseless Allegations in Media Coverage, THE BUSINESS WIRE,
May 25, 2016.
54 Id.
55 See CBL & Associates Properties, Inc. Provides Update on Recent Financial Allegations and Anticipates Near
Term Resolution, THE BUSINESS WIRE, June 13, 2016.
56 Id.
9
standards” and has “stringent policies and procedures in place to ensure all of our accounting and
financial processes and reporting comply with applicable laws, rules and regulations.”57
LEGAL ANALYSIS
The foregoing facts, supported by our ongoing investigation, may be sufficient to plead claims
under Sections 10(b) and 20(a) of the Exchange Act against CBL and the Individual Defendants.
I.SECTION 10(B) OF THE EXCHANGE ACT
Section 10(b) of the Exchange Act makes it “unlawful for any person, in connection with the
purchase or sale of any security, to ‘make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in light of the circumstances under which
they were made, not misleading.’” Dailey v. Medlock, 551 Fed. Appx. 841, 845 (6th Cir. 2014) (internal
citations omitted). In order to plead a claim under Section 10(b) of the Exchan ge Act, plaintiffs must
establish: “(1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful state of mind; (3) a
connection with the purchase or sale of a security; (4) reliance, often referred to in cases involving public
securities markets (fraud-on-the-market cases) as ‘transaction causation;’ (5) economic loss; and (6) ‘loss
causation,’ i.e., a causal connection between the material misrepresentation and the loss.” Dura
Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-42 (2005)(citations omitted).
A.FALSE AND MISLEADING STATEMENTS
Section 10(b) liability will be imposed only when false statements or omissions are material. See
Ind. State Dist. Council of Laborers v. Omnicare, Inc., 583 F.3d 935, 943 (6th Cir. 2009) (“In order to
recover under § 10(b)and Rule 10b-5, a plaintiff must show both an omissi on or misstatement and its
materiality.”). Facts are material if it is “substantially likely ‘that the disclosure of the omitted fact would
have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information
made available.’” In re Unumprovident Corp. Sec. Litig., 396 F. Supp. 2d 858, 889 (E.D. Tenn. 2005)
(quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)). Further, any information which “would
have assumed actual significance in the deliberations of a re asonable shareholder is material.” Id.
(internal quotations and citations omitted).
Here, misstatements regarding CBL’s ability to obtain financing and the Company’s failure to
disclose that it acquired financing by falsifying information provided to ban ks form the basis of plaintiffs’
claims under Section 10(b). Statements and omissions regarding CBL’s ability to secure financing were
false and misleading because the Company allegedly provided inflated rental income and occupancy rates
in order to secure loans from banks, including for at least four loans in 2011 and 2012.58 The Company
may also be liable under Section 10(b) to the extent it provided inflated occupancy rates and rental
income to investors.
57 See CBL & Associates Properties, Inc. Provides Update on Recent Financial Allegations and Anticipates Near
Term Resolution, THE BUSINESS WIRE, June 13, 2016.
58 Brody Mullins and Aruna Viswanatha, U.S. Probes Real-Estate Firm With Ties to Sen. Bob Corker, THE WALL
STREET JOURNAL, May 24, 2016.
10
While CBL repeatedly informed investors throug hout the Class Period that the Company is
“significantly dependent upon external financing to fund the growth of [its] business and ensure that [the
Company] meet[s] [its] debt servicing requirements,”59 it failed to disclose that it may have been
providing falsified information to banks in order to secure that financing. Investors first began to learn of
the misleading nature of Defendants’ statements and omissions after the close of the market on May 24,
2016, when WSJ revealed FBI and SEC investigations into whether the Company falsified “rental income
and occupancy rates for its properties when providing those figures to banks” when applying for
financing.60 On June 13, 2016, CBL confirmed that the SEC is investigating four non -recourse loans the
Company obtained in 2011 and 2012.61 Given that the Company obtained a total of 18 non -recourse
loans in 2011 and 2012, omitting that the Company provided inflated occupancy rates and rental income
to banks in order to obtain 4 of those 18 loans is material.
Under Section 10(b), a company does not have a duty to disclose all material information to the
public. See City of Monroe Emples. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 669 (6th Cir. 2005).
However, “[w]hen a company chooses to speak, it must ‘prov ide complete and non-misleading
information.’” Ind. State Dist. Council of Laborers , 583 F.3d at 943 (internal citations omitted). Thus,
when the Company provided information to investors regarding its ability to secure financing, it had an
obligation to provide full and accurate information. See City of Monroe Emples. Ret. Sys., 399 F.3d at
669 (“A duty to affirmatively disclose ‘may arise when there is insider trading, a statute requiring
disclosure,’ or, as relevant to this case, ‘an inaccurate, incom plete or misleading prior disclosure.’”)
(internal citations omitted). Further, the Company had a duty to provide additional information to correct
any prior misstatements or to make prior statements not misleading. See id.at 670.
As a result of Defendants’ frequent discussion of the Company’s ability to secure financing,
including non-recourse loans, Defendants were obligated to provide the full truth —namely, that the
Company was inflating occupancy rates and rental income in order to obtain that financ ing. Here, the
existence of FBI and SEC investigations into whether the Company inflated “rental income and
occupancy rates for its properties when providing those figures to banks” strongly suggests that the
Company provided false or misleading informati on to banks and investors. Moreover, the Company’s
confirmation that the SEC is investigating four non -recourse loans obtained by CBL in 2011 and 2012
further supports allegations of falsity.62 By omitting the fact that the Company provided inflated finan cial
information to banks in order to obtain loans, CBL failed to provide investors full disclosure regarding its
ability to secure financing essential to its continued operations and the Company’s ability to meet debt
serving requirements. See, e.g., Zaluski v. United Am. Healthcare Corp., 527 F.3d 564, 572 (6th Cir.
2008) (“[O]nce a company chooses to speak, it must ‘provide complete and non -misleading information
with respect to subjects on which [it] undertakes to speak.’”); J&R Mktg. v. GMC, 549 F.3d 384, 390 (6th
Cir. 2008) (there is “a duty to disclose any additional information required to make another statement,
whether required or voluntarily made, not misleading”). CBL would also be liable under Section 10(b) to
59 See supra, at n.22.
60 Brody Mullins and Aruna Viswanatha, U.S. Probes Real-Estate Firm With Ties to Sen. Bob Corker, THE WALL
STREET JOURNAL, May 24, 2016.
61 See CBL & Associates Properties, Inc. Provides Update on Recent Financial Allegations and Anticipates Near
Term Resolution, THE BUSINESS WIRE, June 13, 2016.
62 As the SEC and FBI investigations progress, additional information may be revealed to support investors’ claims.
11
the extent it provided investors with inaccurate information regarding its occupancy rates and rental
incomes.63 See Helwig v. Vencor, Inc., 251 F.3d 540, 561 (6th Cir. 2005) (“we at least require an actor to
‘provide complete and non -misleading information with respect to the subjects on which he undertakes to
speak’”) (internal citations omitted).
Defendants likely will argue that the Company’s public statements were not materially false.
However, the fact that the FBI and SEC have opened investigations strongly suggests that occupancy
rates and rental income were inflated by CBL in order to secure financing. Moreover, given frequent
analyst questions regarding occupancy rates, rental income and the Company’s financing, and the
corresponding stock drop associated with the corrective di sclosure,64 it is apparent that those issues were
material to investors. See City of Pontiac Gen. Emples. Ret. Sys. v. Lockheed Martin Corp., 875 F. Supp.
2d 359, 368-69 (S.D.N.Y. 2012) (recognizing that investor interest in an issue is an appropriate
qualitative consideration when determining materiality);In re Constar Int’l Inc. Sec. Litig., 585 F.3d 774,
784 (3d Cir. 2009) (“[W]e have previously held that a drop in stock price in an efficient market is one
way to show materiality.”); In re Unumprovident Corp. Sec. Litig., 396 F. Supp. 2d at 889 (“A securities
fraud complaint should not be dismissed [on a motion to dismiss] on the basis the alleged misstatements
or omissions are immaterial ‘unless they are so obviously unimportant to a reasonable investor that
reasonable minds could not differ on the question of their importance.’”) (internal citations omitted). As
the SEC and FBI investigations progress, additional information may be revealed to support Defendants’
wrongdoing.65
B.SCIENTER
In order to establish liability under Section 10(b), plaintiffs must “prove that the defendant acted
with scienter, that is, ‘a mental state embracing intent to deceive, manipulate, or defraud.’” Dailey, 551
Fed. Appx. at 846 (internal citations omitted). Scienter can be proven by showing that the Company
acted with recklessness—“highly unreasonable conduct which is an extreme departure from the standards
of ordinary care”. Doshi v. Gen. Cable Corp., No. 15-5621, 2016 U.S. App. LEXIS 9480, at *10 (6th Cir.
May 24, 2016). The court will review “all the allegations holistically” to determine whether scienter is
adequately pled. Dailey, 551 Fed. Appx. at 846. Moreover, pleading scienter as to certain of the
Company’s executive officers or employees will impute scienter to the Company. See Frank v. Dana
Corp., 646 F.3d 954, 963 (6th Cir. 2011) (“Because Plaintiffs have adequately plead ed scienter as to
Burns and Richter—[the company’s] chief executive officer and chief financial officer —they have also
pleaded scienter as to [the company].”). In In re: Omnicare, Inc. Sec. Litig., the Sixth Circuit held that
63 See supra, at 3-6.
64 In response to the May 24, 2016 corrective disclosure, CBL’s stock price dropped by 8.3% on heaving trading
volume on May 25, 2016. See infra, at 13.
65 WSJ also reported that FBI and SEC officials are investigating “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.” Brody Mullins and Aruna Viswanatha, U.S. Probes Real-Estate Firm With Ties
to Sen. Bob Corker, THE WALL STREET JOURNAL, May 24, 2016; see also supra, at 8. These investigations into
insider trading by Senator Corker suggest that a Company employee may have provided the senator with material,
non-public information and may provide additional support for plaintiffs’ allegations as the investigations develop.
While the insider trading claims do not, as yet, state a compelling case of securities fraud by CBL’s public
shareholders, all of the facts relating to Sen. Corker’s trading have not surfaced. Specifically, it is unclear if
information was shared between CBL and the senator as a quid pro quo to help the Company’s operations.
12
corporate scienter may be imp uted by the following Company employees: “a. [t]he individual agent who
uttered or issued the misrepresentation; b. [a]ny individual agent who authorized, requested, commanded,
furnished information for, prepared (including suggesting or contributing langu age for inclusion therein
or omission therefrom), reviewed, or approved the statement in which the misrepresentation was made
before its utterance or issuance; [or] c. [a]ny high managerial agent or member of the board of directors
who ratified, recklessly disregarded, or tolerated the misrepresentation after its utterance or issuance. . . .”
769 F.3d 455, 476 (6th Cir. 2014).
Here, the Individual Defendants —the Company’s President and Chief Executive Officer
(Lebovitz); current Executive Vice President,Chief Financial Officer (Mitchell); and former Chief
Financial Officer, Treasurer and Secretary (Foy)—would have been critically involved in the Company’s
day to day operations and should have been privy to information regarding the inflated occupancy rat es
and rental incomes used to obtain financing essential to the Company’s operations and also should have
been fully aware of the information being provided to lenders to obtain the critically needed financing.
See North Port Firefighters’ Pension -Local Option Plan v. Fushi Copperweld, Inc., 929 F. Supp. 2d 740,
789 (M.D. Tenn. 2013) (“Courts may presume that high -level executives are aware of matters related to
their business’s operation where the misrepresentations as omissions pertain to central, day -to-day
operational matters. . . . This is particularly appropriate for [f]acts critical to a business's core
operations.”) (internal quotations and citations omitted). As such, it is clear that the Individual
Defendants knew, or recklessly ignored, the fact that the Company was securing financing based on
falsified information. See In re Huntington Bancshares Secs. Litig ., 674 F. Supp. 2d 951, 970 (S.D. Oh.
2009) (officers of a company can be assumed to know facts critical to the business’s core operations or to
an important transaction that would affect the company’s performance). Further, Defendant Lebovitz
made public statements throughout the Class Period touting the Company’s “consistently high occupancy
rate[s]” and ability to secure financing.66 See Doshi, 2016 U.S. App. LEXIS 9480, at *16 (a corporate
executive’s or employee’s state of mind may be imputed to a corporate defendant when such person
makes a public misstatement). To the extent scienter can be proven for the Individual Defendants,
scienter may be imputed to the Company. See In re: Omnicare, Inc. Sec. Litig., 769 F.3d at 476.
Nevertheless, Defendants will be permitted to provide non -culpable explanations to rebut
plaintiffs’ scienter allegations, and likely will argue that the statement s were not false when made. See
Beach v. Healthways, Inc.,No. 3:08-0569, 2009 U.S. Dist. LEXIS 17809, at *14 (M.D. Tenn. Mar. 9,
2009) (“the court must take into account plausible opposing inferences; in other words, the court must
consider plausible non -culpable explanations for the defendants’ conduct as well as inferences favoring
the plaintiff”). Here, the decision by the SEC to investigate whether the Company provided false
information in order to secure at least 4 of 18 loans obtained by the Compan y in 2011 and 2012 supports
the inference that Defendants knew about, or recklessly ignored, fraudulent conduct. Additional support
for allegations of scienter may be revealed as the investigation develops.
66 CBL & Associates Properties, Inc., Q3 2013 CBL & Associates Properties Inc. Earnings Conference Call -Final,
FD (FAIR DISCLOSURE)WIRE, November 26, 2013; CBL & Associates Properties, Inc., Q3 2015 CBL & Associates
Properties Inc. Earnings Call -Final, FD (FAIR DISCLOSURE)WIRE, October 29, 2015; CBL & Associates
Properties, Inc., Q1 2016 CBL & Associates Properties Inc. Earnings Call -Final, FD (FAIR DISCLOSURE)WIRE,
April 28, 2016.
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C.LOSS CAUSATION
Loss causation is defined as “‘a causal connection between the material representation and the
loss.’” In re Miller Energy Res. Sec. Litig., No. 3:11-cv-386-TAV-CCS, 2014 U.S. Dist. LEXIS 15810,
at *64-65 (E.D. Tenn. Feb. 4, 2014) (quoting Dura, 544 U.S. at 342).
Unlike other elements of Section 10(b) that must be pled with particularity, the loss causation
element is not subject to a heightened pleading standard in the Sixth Circuit. See id.at *65. Rather,
allegations of loss causation must be supported by a “short and plain stat ement of the claim” specifying
“the relevant economic loss sustained by plaintiff” and “how the loss occurred.” Id.(internal quotations
and citations omitted). Thus, plaintiffs must plead when the alleged fraud became known, estimate the
damages the alleged fraud caused, and connect the alleged loss with Defendants’ disclosure using more
than boilerplate language. Id.
As detailed above, in response to the disclosure of the FBI and SEC investigations into CBL’s
alleged overstatement of rental income and occupancy rates in order to secure financing (and questions
regarding the Company’s relationship with Senator Corker), the price of CBL’s common stock declined
by $0.86, or 8.3% on heavy volume, from a close of $10.26 per share on May 24, 2016, to close a t $9.40
per share on May 25, 2016.
Pleading loss causation will not be an issue at the motion to dismiss stage of the litigation.
II.SECTION 20(A) OF THE EXCHANGE ACT
Plaintiffs can also plead claims under Section 20(a) of the Exchange Act against the I ndividual
Defendants as control persons of the Company. “Section 20(a) of the Securities Exchange Act provides
that ‘[e]very person who . . . controls any person liable under any provision of this chapter or of any rule
or regulation thereunder shall also be liable jointly and severally with and to the same extent as such
controlled person.’” Doshi, 2016 U.S. App. LEXIS 9480, at *25 (quoting 15 U.S.C. § 78t(a)). Here, the
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Individual Defendants, as the Company’s executive officers, would be liable under S ection 20(a) if claims
against CBL under Section 10(b) are sustained. See, e.g.,JAC Holding Enters., Inc., v. Atrium Capital
Partners, LLC, 997 F. Supp. 2d 710, 738 (E.D. Mich. 2014) (finding “position as an officer or director,
possession of a significant block of voting stock, and the direction of employees within the scope of their
duties” are all evidence of control).
CONCLUSION
We believe the publicly available facts, which may be supplemented by additional information
from the FBI and SEC investigations, may be adequate to plead actionable claims under Sections 10(b)
and 20(a) of the Exchange Act. Accordingly, we recommend that you consider moving for lead plaintiff
by the July 26, 2016 deadline.