Robbins Arroyo LLP: Resource Capital Corp. (RSO) Investors Survive Defendants’ Motion to Dismiss in Securities Class Action
Robbins Arroyo LLP announces that a lawsuit was filed against Resource Capital Corp. (NYSE: RSO) in the U.S. District Court for the Southern District of New York, alleging violations of the Securities Exchange Act of 1934 by Resource Capital’s officers and directors. Resource Capital attempted to dismiss the case on April 12, 2016, by filing a motion to dismiss (“Motion to Dismiss”). The Court subsequently denied Resource Capital’s Motion to Dismiss on October 5, 2016. Resource Capital, a diversified real estate investment trust, primarily focuses on originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments in the United States.
Resource Capital’s Motion to Dismiss Is Denied
According to the complaint, throughout the class period, Resource Capital failed to alert its investors of a particularly risky and dangerous loan (the “Mezzanine Loan”) within its portfolio. Importantly, three hotels in Puerto Rico were the only assets securing the Mezzanine Loan. However, Puerto Rico’s economy was suffering from a crippling recession, leading its debt to be downgraded and returns on debt to plummet. Despite Resource Capital’s acknowledgement that the value of real estate debt is sensitive to local economic trends, the company neglected to warn investors of the imminent need to write-down the Mezzanine Loan. On August 4, 2015, Resource Capital disclosed a Generally Accepted Accounting Principles net loss of $31 million during the quarter due to the company’s recording of an allowance for loan loss on the Mezzanine Loan position of $41.1 million. When the company subsequently released more information about the charges incurred as a result of the impairment of the debt, Resource Capital stock fell $0.51 per share, or 15%, to close at $2.97 per share on August 6, 2015.
In denying the Motion to Dismiss, the Court held that the plaintiff’s complaint adequately alleged that the defendants misled investors. The Court further held that the plaintiff sufficiently alleged that the relevant facts were known to defendants and the omission of the details about the Mezzanine Loan gave Resource Capital the ability to maintain the impression that the portfolio was performing well.
Resource Capital Shareholders Have Legal Options
Concerned shareholders who would like more information about their rights and potential remedies can contact attorney Darnell R. Donahue at (800) 350-6003, or you can complete the form below and we will contact you directly.
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