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Colony NorthStar Did Not Disclose Adverse Information Securities Class Action

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Colony NorthStar, Inc. is a real estate and investment management company that operates in five segments. The complaint for this class action alleges that the company did not disclose in a timely way adverse information, about the company’s Healthcare and Investment Managements segments, including some units related to its merger, in violation of the Securities Exchange Act of 1934.

The class for this action is all persons and entities who acquired the publicly-traded securities of Colony NorthStar between February 28, 2017 and March 1, 2018.

Colony NorthStar was formed via a three-way merger of Colony Capital, Inc., NorthStar Asset Management Group, Inc., and NorthStar Realty Finance Corp. At the time of the merger, the company announced that it would provide the stockholders of both companies with “an even stronger value proposition through enhanced relationship, substantial synergies and greater scale in established, durable real estate and investment management business with broad-based capital access and investment opportunities. 

During the class period, the company made regular public statements on its various divisions. In Healthcare, for example, it talked about buildings and facilities sold and “asset monetization initiatives.”

In Investment Management, it talked about its “stable stream of management income” and its “embedded broker-dealer platform which raises capital in the retail market” as well as the additions provided by NorthStar’s investment business.

Yet the complaint claims that the statements were false or misleading, because they did not disclose the full truth—that the company’s Healthcare and Investment Management segments were not performing as well as it said.

This news, the complaint says, came out only on March 1, 2018, the end of the class period, when the company filed its Form 10-K annual report with the Securities and Exchange Commission (SEC). In this filing, the company reported that it was taking a $375 million goodwill impairment. Most of this was due to the company’s Investment Management segment, the complaint says, specifically its investment management reporting unit, NorthStar Healthcare Income, Inc., and NorthStar/RXR NY Metro Real Estate, Inc.

The 10-K mentioned a $316 write-down in goodwill “which represents the excess in carrying value of our investment management reporting unit … over its estimated fair value…” and a write-down related to non-traded REITs it had acquired in the merger, “specifically $55.3 million for NorthStar Healthcare Income, Inc. …  and $3.7 million for NorthStar/RXR NY Metro Real Estate, Inc. based on revised capital raising projections.”

In a same-day conference call, company officials admitted that “our earnings performance has not lived up to expectations…” As to its retail broker dealer business, they claimed, “The industry generally remains in enormous transition from the regulatory headwinds…”

At this news, the company’s stock price fell by over 22%.

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