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In re The Mills Corporation Securities Litigation
(United States District Court for the Eastern District of Virginia)
On July 27, 2007, BLB&G and Mississippi Public Employees’ Retirement System (“Mississippi PERS”)
filed an Amended Complaint against The Mills Corporation (“Mills” or the “Company”), a former real estate investment trust,
certain of its current and former senior officers and directors, its independent auditor, Ernst & Young LLP, and its primary
joint venture partner, the KanAm Group. The case relates to Mills’ use of a variety of fraudulent accounting practices,
including its treatment of its share of earnings from joint ventures with related parties, the capitalization (rather than
expensing) of interest and certain other costs, the timing of gains on sales of partnership interests, accounting for
investments by a subsidiary, and the treatment of expenses related to the Company’s long term incentive plan. These
fraudulent accounting practices resulted in the announcement of a restatement. Due the Company’s April 2007 sale to
Simon Property Group (“Simon”) and Farallon Capital Management L.L.C. (“Farallon”), it is unlikely that a restatement will
be issued. Simon and Farallon are named as defendants in the Complaint as successors in interest to Mills.
Based on the Company’s disclosures to date, the restatement was expected
to significantly reduce Mills’ net income and funds from operations (“FFO”) for the fiscal years 2000 through 2005.
In particular, Mills admitted that every financial statement issued by the Company for the years 2000 through 2004
and the first three quarters of 2005 were materially false and misleading, and that the net income reported for 2003,
2004 and the first nine months of 2005 was overstated by 158%. Mills further admitted that its shareholders’ equity,
as of September 30, 2005, was overstated by approximately $350 million, meaning that its actual shareholders’
equity was only approximately $976 million, compared to the $1,326 million earlier reported by Mills
– an overstatement of 35%.
Mills conducted an internal investigation into its accounting practices, which resulted
in the retirement, resignation and termination of 17 Company officers and concluded, among other things, that: (a)
there had been a series of accounting violations that were used to “meet external and internal financial expectations”;
(b) there were a set of accounting errors that were not “reasonable and reached in good faith” and showed “possible
misconduct”; and (c) the Company “did not have in place fully adequate accounting information systems, personnel,
formal policies and procedures, supervision, an internal controls.” In addition, the Company has disclosed that the
U.S. Securities and Exchange Commission has commenced a formal investigation into the Company’s accounting. These
disclosures have resulted in a 43 percent decline in Mills’ share price and a market capitalization loss of
approximately $1.6 billion.
Previously, on May 30, 2006, the United States District Court for the Eastern District
of Virginia appointed BLB&G client Mississippi PERS as Co-Lead Plaintiff and BLB&G as Co-Lead Counsel for the Class.
Firm partners
Steve Singer
and
Hannah Ross and
associate
Laura Gundersheim are responsible
for prosecuting this action.
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