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April 22, 2011

Question Revisited: How Craftily Close Did Forest City Ratner Skate On Thin Ice of Securities Law Violation With Non-Promise of a Hockey Arena?

Noticing New York

With recent confirmatory revelations that the design of the Forest City Ratner/Mikhail Prokhorov arena was definitely not intended to accommodate a professional hockey team, it is worth circling back to examine again the language included in the official statement to sell the bonds that strongly conveyed the impression that it could do so.

Atlantic Yards Report wrote that Bob Sanna, Forest City Ratner Executive VP for Construction, just recently told a Pratt Institute School of Architecture audience that the arena was not intended for hockey team use. (See: Tuesday, April 19, 2011, Forest City executive says shrinking arena to preclude major league hockey was conscious choice, downplays modular construction as "research project".) Specifically, Mr. Sanna told the Pratt Institute School of Architecture audience that when the arena was shrunk, undergoing what he characterized as “a complete redesign”:

"we made some pretty deliberate decisions early on: we weren't going to have a [professional] hockey team."

That’s a confirmation of something that seemed pretty obvious looking at the schematics: the redesigned arena is far too small to accommodate a standard professional size hockey rink.

But what were the buyers of the bonds for the arena told in the information that was part of the official statement, the disclosure document used to sell bonds? They were told:

For purposes of this analysis, it has not been assumed that the New York Islanders would relocate to the Barclays Center.
...

OK, that language says that it has “NOT” been “assumed that the New York Islanders would relocate to the Barclays Center” but doesn’t it by any reasonable standard imply that, with luck, there is a legitimate possibility Islanders or another professional hockey team could decide to relocate to the arena?
...

As such, if the bonds for the arena one day default, as they could, will bond holders be able to sue on the basis that this statement misleadingly misrepresented the arena’s potential uses and revenue sources and therefore its value? If not, the non-positive statement at least says something negative about Forest City Ratner’s business ethics in its willingness to convey misimpressions with craftily constructed non-promises.

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Related coverage...

Atlantic Yards Report, Did elimination of pro hockey option at Barclays Center deceive bondholders?

Posted by eric at April 22, 2011 11:13 AM