American Realty Capital Properties to Pay Investors $1B

Nicholas Schorsch’s former real estate investment trust (REIT) American Realty Capital Properties Inc. (ARCP) has arrived at a $1B settlement with investors who sued over the company’s accounting scandal that led to inflated financial results five years ago. Now called Vereit, the REIT will pay $738.5M of the class action securities fraud settlement, while Schorsch’s American Realty Capital (AR Capital) will pay $225M. American Realty Capital Property’s ex-CFO Brian Block will pay $12.5M of the settlement. Meantime, Grant Thornton, the firm’s auditor during the period of the scandal, will pay $49M.

American Realty Capital Properties admitted to a $23M accounting error in late 2014. After ARCP restated its financials, investors sold their shares, causing a $3B drop in the REIT’s value. At one point, ARCP held $20B in assets.

Investors sued, accusing the REIT of incorrectly stating financials so as to spur acquisitions and inflate financial results. Two years ago, Block pleaded guilty to securities fraud related to the accounting misstatements.

In July, Schorsch and American Realty Capital (AR Capital) agreed to pay $60M to settle US Securities and Exchange Commission charges accusing him and Block of wrongfully making millions of dollars related to two real estate investment trust mergers with ARCP that his firm oversaw. As part of that settlement, AR Capital’s payment included more than $26.3M in penalties and disgorgement, as well as 2.9 million in operating partnership (OP) units. Schorsch’s portion was almost $14M and 1.5M OP units. Block’s part of the settlement was $1.1M and 83,000 in OP units.

The SEC accused the defendants of making $7.27M in overcompensation through sale and asset purchase agreements connected to the two mergers. By settling, Block, Schorsch, and AR Capital are not denying or agreeing to the SEC charges.

This latest REIT settlement is not the first time that Vereit has paid investors because of the ARCP accounting scandal. According to InvestmentNews, Vereit announced last year that it had already paid $85M to eight plaintiffs and also $90M to Vanguard. The latter’s holdings had made up about 13% of the REIT’s common share stock at the conclusion of the period that covered various shareholder actions.

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