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

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. (See images above and below showing the size of the rink that would have to be crammed into the planned arena and somehow work with seating, entrance and egress.

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.

For more on this see the Noticing New York analysis provided before the bonds were sold (Monday, December 7, 2009, The Craftily Negative Promise Offered For Bonds Being Sold For Nets Arena: It’s Not “Assumed” Islanders Hockey Team Is Coming to Basketball Arena) and also Atlantic Yards Report’s coverage at that time (See: Friday, December 04, 2009, Market analysis (commissioned by Ratner) suggests arena would have no trouble attracting events, might even host hockey).

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? Let’s put it this way- Say a developer was trying to finance a building on the banks of the Gowanus Canal prior to the pending superfund cleanup of the toxins: Wouldn’t this be just like their saying in the prospectus that it has “NOT” been “assumed that the residents of the building will immediately appreciate the opportunity to swim luxuriously in the waters of the world-famous canal”?

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.

The recent Atlantic Yards Report story says that Mr. Sanna described the problem with introducing hockey into the smaller redesigned arena in terms of a lack of “good hockey sight lines” and that the arena seats can only be moved “in one direction,” but the impediments would seemingly be much more profound. Just look at the visuals. (More visuals and measurements here.) Perhaps, with a fair amount of jury-rigging, there would be a way to occasionally squeeze a truncated, less than professional-spec ice rink into the space, but even that looks like a challenge, let alone have a professional team play games there on a regular schedule. The problem was really sight lines?

Mr. Sanna may have been knowingly soft-pedaling the arena-as-hockey-venue problems. Mr. Oder of Atlantic Yards Report pointed out that Mr. Sanna was “incomplete, misleading, or erroneous” in at least one other statement to the audience: Although the entire Atlantic Yards mega-project, with its projected 16 towers beyond the arena, is likely to take at least the 25 years currently provided for in the documents, Mr. Sanna spoke about how it was “contemplated to be built out over the course of six years.” The very best that Forest City Ratner could be hoping for in six years would be the completion of only the very first phase of the project.

If the bonds do eventually default, the purchasers are going to want their attorneys to go looking for articles like Mr. Oder’s that reveal what the real thinking was when the misleading negative non-promise was inserted into the bonds' official statement. But they might not immediately realize that such evidence is available to be sought out. Other Atlantic Yards Report articles show that a gullible press (Fox Sports and the Daily News) is playing along with Forest City Ratner’s coy perpetuation of the notion that they still might think hockey is possible in this smaller arena:

On Fox: When an interviewer asked about hockey and a professional team like the Islanders playing there, Brett Yormark (Nets Sports and Entertainment CEO, and essentially a Ratner/Prokhorov employee) called it:

a "a multipurpose venue" and said they were open to many events. "We would love the Islanders to play a couple of games at the Barclays Center," he said, noting that the Long Island Rail Road could directly deliver Islanders fans.

(See: Friday, April 08, 2011, On Fox, Nets CEO Yormark calls Brooklyn "fourth-largest market," plays coy on team name.)

In the Daily News: As late as January the Daily News was irresponsibly writing about:

speculation about the Islanders moving to . . . the under-construction Barclays Center, where the Nets are set to play come 2012.

(See: Friday, January 07, 2011, Daily News piles on speculation in suggesting Islanders may move to Brooklyn.)