Posted: Dec 2, 2016
StoneMor Partners, the nation’s second-largest U.S. operator of cemeteries and funeral homes, is the subject of a class-action lawsuit that alleges executives of the Bensalem business intentionally misled investors with earnings data designed to inflate the company's profits.
Texas resident Judson Anderson filed the lawsuit Nov. 21 in U.S. District Court in Philadelphia on behalf of himself and other investors who bought the company’s publicly traded securities between Jan. 19, 2012, and Oct. 27, 2016.
The suit states the 2012 date signifies the earliest statement StoneMor publicly made about its profits that fell within the five-year statute of limitations for taking this legal action against the company. The second date is when the company issued a press release announcing its quarterly investor cash distributions would be halved for the third quarter of 2016, dropping from 66 cents to 33 cents a unit, according to the lawsuit. With a publicly traded limited partnership, a unit is similar to a share of stock.
This news organization was unsuccessful in reaching StoneMor representatives for comment Thursday or Friday.
Named as defendants are: StoneMor Partners L.P.; CEO, President, founder and board Chairman Lawrence Miller; Chief Financial Officer Sean P. McGrath; Robert B. Hellman Jr., a company director; and Timothy Yost, former StoneMor CFO.
StoneMor Partners is the only publicly traded operator of cemeteries and funeral homes traded as a limited partnership on a U.S. stock exchange, according to Anderson’s attorney, Christopher Nelson, of the Weiser Law Firm in Berwyn. StoneMor had 35.5 million units available to buy; Anderson holds 6,500 units, Nelson said.
The suit alleges that StoneMor issued “materially false and/or misleading” statements about its finances and reported financial information that “ ... concealed the truth about its less-than-rosy financial condition.”
The suit alleges StoneMor wooed investors with a public image of a desirable long-term investment because it consistently paid quarterly cash distributions to unit holders, which gave the appearance of financial stability, Nelson said. Between Jan. 25, 2012, and July 25, 2016, quarterly distributions grew from 58 cents a unit to 66 cents a unit, the complaint states.
To do so, the suit contends, StoneMor issued new securities and used the revenue to pay existing investors. “StoneMor has never in any year generated sufficient cash flow from its operations to make the company distributions,” the suit alleges.
Instead, the suit states, StoneMor raised $508 million from investors since 2005 and paid out $422 million in distributions to unit holders. The suit alleges the company has earned $54 million in cash since its initial public offering in 2007.
“As long as the company was able to keep selling high-yield securities to new investors, StoneMor were able to continue making distributions to old investors and the managers of the scheme,” the suit alleges.
StoneMor reported decreasing cash flows and earnings figures for the first time in August 2016. A month later, the company notified the Securities and Exchange Commission that it would have to restate its consolidated financial statements for the years ending Dec. 31, 2012 through 2015, as well as the first two quarters of 2016 “to correct certain accounting errors,” the suit said.
StoneMor owns or manages 317 cemeteries and 105 funeral homes in 28 states and Puerto Rico. In 2014, StoneMor took over management of the 13 cemeteries owned by the Archdiocese of Philadelphia, including four in Bucks and eastern Montgomery counties, under a 60-year lease and management agreement that cost the company $53 million up front, plus $36 million in future payments. The local cemeteries under its management are Ressurection Cemetery in Bensalem, All Saints Cemetery in Newtown Township and St. John Neumann Cemetery in Chalfont, all in Bucks County, and Holy Sepulchre Cemetery in Montgomery County.
Locally, StoneMor also owns Sunset Memorial Park in Lower Southampton
Locally, StoneMor also owns Sunset Memorial Park in Lower Southampton
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