Securities Class Action Claims Investors Misled as to Washington Prime Group’s Financial Health

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Washington Prime Group, Inc. (WPG) and two executives have been hit with a proposed class action that claims the parties misled investors as to the real estate investment trust’s financial health, triggering multiple drops in stock price.

According to the 24-page case, the defendants failed to disclose to investors “material adverse facts” about WPG’s business, operations and prospects, including that the company’s financial condition was “deteriorating substantially” and there existed “substantial uncertainty” about WPG’s ability to meet its capital structure obligations. 

The suit says the company’s stock price took several hits when WPG eventually revealed that it would likely default on a financial obligation. The company’s stock price fell further, the case relays, when news reports hinted at a potential bankruptcy filing before the defendants finally disclosed that there was “substantial doubt” as to the company’s ability to continue as a growing concern. Investors, who the case says were blindsided by the negative news, allegedly suffered financial injury as a result of the “precipitous decline” in the market value of WPG’s securities.

The timeline in the lawsuit begins in November 2020, when WPG announced its third quarter financial results for that year. Per the suit, WPG’s CEO, a defendant in the case, assured investors in a November 6, 2020 conference call that the company’s deleveraging efforts “in no way, shape, or form has anything to do with a bankruptcy or a corporate restructuring, and if anything will serve as a testament to our operational abilities.” The lawsuit alleges that the defendants’ statements, including those made in a December 15, 2020 SEC filing that disclosed the existence of confidentiality agreements with certain debt holders, were “materially false and/or misleading” given they failed to alert investors as to the true state of WPG’s business affairs.

According to the case, the truth began to emerge in February 2021 when WPG disclosed that its operating partnership, Washington Prime Group, L.P., had withheld an interest payment on outstanding senior notes and had 30 days before the non-payment would constitute “an event of default.” The company further stated that if a default occurred, some of the trustees or holders of the notes could accelerate the outstanding indebtedness due, resulting in a “cross-default” with respect to the company’s other indebtedness, the suit relays. WPG’s stock price fell 38 percent on the release of this news, the case says.

Per the lawsuit, the company’s stock price fell another 60 percent on March 4, 2021 after Bloomberg reported that WPG was “preparing a potential bankruptcy filing … according to people with knowledge of the plans.”

Finally, the case says, WPG disclosed on March 16 that it had entered into a forbearance agreement with respect to the senior notes, and stated that there existed “substantial doubt” as to the company’s ability to continue as a going concern.

In light of the foregoing, the defendants’ positive statements concerning WPG’s business, operations and prospects were “materially misleading” and lacked a reasonable basis, the lawsuit argues, charging that the resulting stock price drop unfairly harmed stockholders.

The lawsuit looks to represent all persons or entities who purchased or otherwise acquired WPG securities between November 5, 2020 and March 4, 2021 and were damaged thereby.

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