A class action lawsuit was filed against Sun Communities, Inc. (SUI) by Levi & Korsinsky on December 12, 2024. The plaintiffs (shareholders) alleged that they bought SUI stock at artificially inflated prices between February 28, 2019 and September 24, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Sun Communities stock during that period can click here to learn about joining the lawsuit.
Discover the Best Stocks and Maximize Your Portfolio:
- See what stocks are receiving strong buy ratings from top-rated analysts.
- Filter, analyze, and streamline your search for investment opportunities with TipRanks’ Stock Screener.
Sun Communities operates as a real estate investment trust (REIT) with a focus on the acquisition, development, and management of manufactured housing, recreational vehicles, and marinas.
The company’s claims about its accounting practices and internal controls on financial reporting are at the heart of the current complaint.
Sun Communities’ Misleading Claims
According to the lawsuit, Sun Communities and four of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Company’s accounting practices, internal controls over financial reporting, and certain transactions, from SEC filings and related material.
For instance, during the Class Period, the company and defendants constantly praised their year-over-year growth in different financial metrics. The company displayed robust growth over the years in terms of core FFO (funds from operations), NOI (net operating income), revenue-producing sites, and home sales, among others.
Furthermore, the company boasted that it was able to increase the rent and occupancy even during the COVID-19 pandemic era, leading to robust growth. The company called its platform recession-resistant, offering best-in-class properties and poised for significant growth going forward.
However, subsequent events (discussed below) revealed that Sun Communities and the defendants wilfully misled investors about the accuracy of their financial statements and internal controls.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the company’s internal controls and oversight of financial reporting standards.
The information became clear after the market closed on September 24, 2024, when Blue Orca released a report accusing Sun Communities of certain accounting malpractices. The report noted that SUI’s CEO received an undisclosed $4 million worth of mortgage from an independent board member (Brian Hermelin) of the company.
Additionally, the report alleged that Hermelin is a stepcousin of the CEO, with their families sharing very close ties. Notably, Hermelin was made the Chair of the Compensation Committee and a member of the Audit Committee since 2015.
Blue Orca detailed a few other lapses in Sun Communities’ internal control and concluded that such instances compromise the independence of the board members, especially of the Compensation Committee and the Audit Committee. The report also added that such practices raise doubts about the integrity of the company’s internal controls, governance, and financial disclosures.
To conclude, the defendants allegedly misled investors about the internal controls and financial reporting procedures followed by the company. Notably, since the day Blue Orca filed the report until February 11, SUI stock has declined 7.9%, causing meaningful damage to shareholder returns.
