Boss of controversial cemetery firm to retire
StoneMor shareholders claim they suffered stock losses after being misled by the company
Embattled burial industry giant StoneMor Partners L.P. announced the retirement Tuesday of its founder and Chief Executive Officer Lawrence Miller.
“I have been thinking about retiring for some time and wanted to ensure an orderly transition for the business,” Miller, 67, stated in a release indicating he will step down in August.
“It has been an honor and privilege to work with and partner with the incredible team of men and women at StoneMor and the families we serve,” said Miller. “I am proud of our achievements, especially over the last 13 years as a public company, during which we have grown to become one of the largest owners and operators of cemeteries and funeral homes in the United States.”
Trevose-based Stonemor Partners LP is facing a consolidated shareholder lawsuit in Philadelphia federal court, as well as a separate derivative lawsuit filed on behalf of the company by shareholder Mark J. Bunim.
Miller, who has been the CEO, president and chairman of the board of StoneMor GP since its formation in 2004, is a named defendant along with general partner CFO Sean P. McGrath, Timothy K. Yost, former CFO of the general partner, and general partner board Chairman Robert B. Hellman Jr.
Hellman stated in Tuesday’s release that Miller has been a personal friend and colleague for more than 15 years, and was instrumental in forming the company. Miller will stay on as an advisor and vice chairman of the StoneMor GP board following his retirement, according to the release.
StoneMor is the nation’s second-largest provider of funeral and cemetery products and services in the death-care industry. The company took over management of the Archdiocese of Philadelphia’s 13 cemeteries in May 2014 under a 35-year agreement designed to help defray the archdiocese’s unfunded liabilities.
The lawsuits stem from the company’s announcement late last year that there were weaknesses with its internal controls and that it would have to adjust financial statements to reflect incorrect amounts stated for various revenues and liabilities. StoneMor also posted revenue and distributable cashflow losses, and indicated it could no longer rely on past performance metrics.
Two nearly identical shareholder suits followed in the U.S. District Court for the Eastern District of Pennsylvania alleging violations of the Exchange Act for engaging in a “financial shell game” with shareholders between January 2012 and October 2016.
The complaints, consolidated last month in the U.S. District Court for the Eastern District of Pennsylvania, say the stock price suffered a 45 percent drop on heavy trading the day after a distribution cut to shareholders was announced and reached a low of $8.29 per share in the weeks following the announcement. StoneMor opened at $8.76 per share Tuesday, but was trading at $8.12 by 3 p.m.
The shareholders claim they were repeatedly told throughout the class period to ignore financial metrics based on generally accepted accounting principles and to instead measure the company’s success on non-GAAP metrics such as “production-based revenue” and “adjusted-operating profits.”
StoneMor allegedly touted its “adjusted” figures while ramping-up dividend payments to investors each year, but never actually generated sufficient cash flow to make these distributions. Instead, the shareholders claim, the company simply kept issuing new securities and used those funds to pay off old investors.
“As long as the company was able to keep selling high-yield securities to new investors, StoneMor (was) able to continue making distributions to old investors and the managers of the scheme,” the complaint says.
StoneMor allegedly identified these public offerings as being used to pay down debt. The complaint says the company was able to raise $508 million from investors since 2005 and has paid out $422 million as “profit.”
But the plaintiffs say StoneMor has only earned $54 million in total free cash flow since its initial public offering in 2007.
The complaint identifies the company’s unique partnership structure with StoneMor GP as one motivator for the alleged scheme. StoneMor GP allegedly receives additional distributions whenever StoneMor Partners issues distributions above $0.51 per unit. As long as StoneMor kept distributions above that figure, the general partner received more money, according to the complaint. Between Jan. 25, 2012, and July 25, 2016, quarterly distributions grew from $0.58 to $0.66, the complaint says.
StoneMor reported decreasing cash flows and earnings figures for the first time in August 2016, according to the complaint. Miller allegedly blamed slow pre-need sales and “structural changes” in the sales force for the slump, but the complaint alleges he was already aware the alleged scheme was unraveling.
The company notified the Securities and Exchange Commission the following month 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.
StoneMor issued a press release Oct. 27, 2016, announcing quarterly cash distributions would be cut in half for the third quarter of 2016 – from $0.66 to $0.33 per unit.
The derivative suit, filed in February, makes substantially similar allegations. It also names StoneMor, Miller, McGrath and Hellman, along with board members Howard L. Carver, of Colorado, Martin R. Lautman, of Pennsylvania, Fenton R. Talbott, of Missouri, co-founder and former CFO William R. Shane, of New Jersey, Jonathan A. Contos, of California, and Allen R. Freedman and Leo J. Pound, both of Florida.