Judge Rules Class-Action Fraud Suit Against Hotel Chain Can Proceed
A class-action fraud lawsuit against LuxUrban Hotels can go forward after a federal judge ruled that the Miami-based hotelier likely made false statements about its portfolio.
In an opinion issued Friday, U.S. District Judge Paul Engelmayer denied LuxUrban's attempt to dismiss the lawsuit, which was filed in February 2024 and amended in September. The complaint hinges on an allegation that LuxUrban falsely claimed to have completed leases at four hotels: the Truss, The James and the Royalton in New York City and the Trinity in Los Angeles.
Citing reporting by Bisnow and a research report by short seller Bleecker Street Capital, Engelmayer wrote that former LuxUrban co-CEOs Brian Ferdinand and Shanoop Kothari made apparently false statements promoting the growth of their portfolio, citing lease deals for the hotels that weren't actually completed.
“A reasonable investor could have easily understood LuxUrban’s statements to convey that it had consummated the transactions and added the hotels to its portfolio,” wrote Engelmayer, a judge in the U.S. District Court for the Southern District of New York.
Ferdinand and Kothari doubled down on claims that LuxUrban had executed those agreements, including during an investor day in early February 2024, after Bleecker Street had published its short seller report.
“Their own statements heralding the addition of the four hotels reflects how central each was to the growth story LuxUrban told its investors,” the judge wrote. “It is thus ‘virtually inconceivable’ that Ferdinand and Kothari were unaware that the hotel transactions they touted had not been consummated.”
Ferdinand and Kothari’s subsequent departures from LuxUrban, which happened in the months following Bisnow's reporting and the short seller report, amounted to leaving “under suspicious circumstances,” Engelmayer wrote.
More evidence is needed, however, to meet legal standards of proof that Ferdinand or Kothari personally defrauded investors, he wrote. Distressed investment company zCap Equity Fund LLC and private investor Ross Marchetta serve as lead plaintiffs for the suit, which can now proceed to discovery with a pretrial conference scheduled for Sept. 2.
Pomerantz attorney Jonathan Park, who is representing the plaintiffs, declined to comment to Bisnow. Lawyers for LuxUrban didn't immediately respond to requests for comment.
Ferdinand founded LuxUrban as a short-term rental company called CorpHousing Group but pivoted during the pandemic to signing master lease deals to take over distressed hotels, a model industry experts described as a WeWork for hotels. Ferdinand led the company to its $13.5M IPO in 2022 and has served as CEO, the largest shareholder and chairman of the board for most of its existence.
Kothari was hired as chief financial officer before being promoted to co-CEO with Ferdinand in November 2023. Ferdinand resigned as CEO in March 2024, leaving Kothari as sole chief executive before he was terminated and replaced by Robert Arigo three months later. Arigo left the company this year, and Ferdinand stepped in as interim CEO in April.
Last month, Ferdinand resigned again as LuxUrban’s interim CEO and from his role on the board of directors, effective immediately, according to an SEC filing.
“Mr. Ferdinand’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices,” the filing says. “Mr. Ferdinand remains committed to the Company as an investor and plans to continue to support the Company in that capacity moving forward.”
LuxUrban hasn't yet announced a successor. Its highest-ranking executive is now Brandon Elster, the chief development officer who was named president in December 2024. Michael James, who joined the company last summer, remains LuxUrban’s CFO.
At its height, LuxUrban was a public company claiming to operate more than 2,000 hotel rooms in four cities and had entered into a franchise agreement with Wyndham Hotels & Resorts Trademark Collection.
But it failed to pay rent at many of the properties it leased, resulting in a hail of litigation from landlords and vendors. New York City sued it in April for bouncing a check and failing to pay a $1.2M fine after it admitted to operating 4,300 illegal short-term rentals.
It lost the franchise agreement with Wyndham — which Bisnow reported before it was disclosed to LuxUrban investors, a fact cited in the judge's opinion — and its portfolio has been dwindling. Last month, it paid the owner of 123 Washington St. in Manhattan $3.4M to settle a $12M judgment against it and agreed to surrender the property. It now lists just three hotels on its website, all in Manhattan.
