CTO Realty Growth: A High-Stakes Gamble Amid Fraud Allegations and Legal Storms

Investors in CTO Realty Growth, Inc. (CTO) now face a precarious situation as explosive allegations of financial misconduct and accounting irregularities threaten the stock's stability. Wolf Pack Research's June 2025 report has ignited a firestorm of legal scrutiny, with multiple law firms investigating potential securities fraud. The claims—ranging from “sham loans” to manipulated metrics and overpriced acquisitions—paint a picture of a company at risk of severe regulatory penalties, investor lawsuits, and further stock declines. This analysis evaluates the credibility of these allegations, their financial implications, and the urgent steps investors must take to mitigate risk.

The Allegations: A Recipe for Disaster

Wolf Pack's report alleges that CTO engaged in a multi-faceted scheme to mislead investors about its financial health. Key claims include:

1. Sham Loan to Hide Tenant Collapse: CTO allegedly avoided impairing a loan tied to its Ashford Lane property, despite its top tenant defaulting in late 2022 and an affiliate filing for bankruptcy in early 2023. By not writing down the loan, CTO obscured losses, artificially inflating its balance sheet.
2. Manipulated AFFO Metrics: CTO's AFFO (Adjusted Funds From Operations) excludes recurring capital expenditures (CapEx), a practice Wolf Pack calls “manipulative.” Unlike peers, this exclusion inflates cash flow figures, misleading investors about sustainability.
3. Overpaid Acquisitions and Misaligned Incentives: Wolf Pack accuses management of overpaying for properties, such as the $79.8 million Ashley Park acquisition, to boost short-term metrics. Notably, 70% of management bonuses are tied to AFFO—a clear conflict of interest that incentivizes aggressive accounting.

The fallout has already begun: CTO's stock dropped 5.4% on June 25, 2025, closing at $17.10, and faces mounting legal pressure.

Credibility of the Claims: A Strong Case Against CTO

The allegations carry significant weight due to:
- Documented Evidence: Wolf Pack cites the Ashford Lane tenant's bankruptcy and CTO's failure to impair the loan, suggesting intentional obfuscation.
- Industry Benchmarks: Excluding recurring CapEx from AFFO deviates from standard REIT practices, raising red flags about transparency.
- Governance Failures: Linking executive bonuses to manipulated metrics creates a clear incentive to prioritize short-term gains over long-term health.

Legal firms like Glancy Prongay & Murray LLP and Hagens Berman have already launched investigations into potential securities fraud, signaling investor confidence in the allegations.

Legal and Financial Risks: The Domino Effect

The stakes for CTO—and its investors—are enormous:

1. Regulatory Penalties: If found guilty, CTO could face fines, restatements of financials, and restrictions on operations. The SEC's focus on non-GAAP metric manipulation (like AFFO) adds another layer of risk.
2. Class-Action Lawsuits: Investors who purchased CTO shares during the alleged misstatement period may sue for losses. A successful suit could force CTO to pay damages, further straining its finances.
3. Dividend Sustainability Crisis: Since 2021, CTO has relied on share dilution (a 70% increase in shares since late 2022) to plug a $38 million dividend shortfall. With only $8.4 million in cash, even minor missteps could force a dividend cut—a blow to income-focused investors.

Investment Risks: Why Holding CTO is a Gamble

The stock's risk profile is now elevated due to:
- Heightened Uncertainty: Ongoing investigations and potential litigation create volatility. A single adverse ruling or settlement could trigger a sharp sell-off.
- Valuation Pressure: If AFFO is restated to include CapEx, CTO's cash flow appears weaker, potentially lowering its valuation multiple.
- Shareholder Dilution: Further equity raises to fund obligations will dilute existing stakes, compounding losses.

Recommendations for Investors

1. Immediate Legal Consultation: Affected investors should contact securities lawyers to explore class-action participation or whistleblower claims (up to 30% of recoveries via the SEC program).
2. Avoid New Purchases: Until CTO addresses the allegations through independent audits or regulatory settlements, the stock carries extreme risk.
3. Consider Selling: For long-term holders, exiting now could limit losses, as the stock's trajectory hinges on costly outcomes.

Conclusion: A Tipping Point for CTO

Wolf Pack's report has exposed a company that may have prioritized management enrichment over shareholder value. With legal battles looming and financial metrics under a microscope, CTO's stock is a high-risk bet. Investors must treat this as a warning: the path to recovery is narrow, and the costs of inaction could be catastrophic. In such scenarios, the old adage holds true—better to exit now than regret holding a sinking ship later.

Final thought: Fraud allegations and shareholder lawsuits are a toxic mix for any stock. CTO's future is now inextricably tied to the outcome of these investigations—a gamble best avoided unless you're prepared to lose.