Federal Judge Allows Investor Class Action Over Lightstone REIT Disclosures to Proceed
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 to extend the funds’ operating periods.
U.S. District Judge Michael A. Shipp ruled Aug. 5 that investors adequately alleged that proxy materials and shareholder solicitation calls failed to disclose a material conflict involving the REITs’ chairman and CEO David Lichtenstein, who also owned the funds’ external advisers through affiliated entities, AltsWire reported.
The case will proceed on all four counts, including breach of fiduciary duty claims against the directors and advisory entities.
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 did not explain that they had no value unless the REITs extended their operating periods. Judge Shipp found the omitted information could have materially affected a reasonable shareholder’s understanding of the amendments.
He also found Lightstone’s shareholder solicitors made misleading statements between the initial December 2022 annual meeting and a reconvened January 2023 meeting. The amendments failed at the first meeting but passed at the second. Plaintiffs said solicitors told undecided shareholders that voting “yes” was the most likely path to liquidity, even though the amendments eliminated the liquidation deadline.
The court found the proxy materials failed basic disclosure requirements, stressing that shareholders should receive clear information rather than have to piece together material facts.
