Mills' Troubles Deepen

The Mills Corp. (Chevy Chase, Md.), the real estate investment trust known for building large suburban off-price malls, acknowledged that it was running out of cash and might be forced to seek bankruptcy protection.

In a filing with the Securities and Exchange Commission, the company also disclosed that an internal audit had found “errors caused by possible misconduct by former accounting and asset management personnel of the company.”

According to the filing, the number of errors that may be characterized as misconduct was “relatively small.” But if fraud was committed, Mills’ value would drop even further because of shareholder lawsuits. Although the company did not identify those suspected of engaging in misconduct, it characterized the audit as saying that the “overall culture and ‘tone at the top’ were heavily focused on meeting external and internal financial expectations” and that adequate controls did not exist.

Mills, which owns all or part of 38 malls across the country, has replaced its entire management team during the last year. It faces a March 31, 2007, deadline, postponed from Dec. 31, 2006, to repay a $1 billion loan from Goldman Sachs.