Articles Posted in Class Action Lawsuits

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.

The first class action securities case against GPB Capital Holdings has been filed. The alternative asset management firm, which invests in waste auto management companies and car dealerships, is accused of operating a $1.8B dollar Ponzi scam that caused thousands of investors to suffer major losses. Now, investors of two of its funds are demanding that GPB fulfill its duty to provide yearly audited statements. GPB has not issued these statements since 2017.

The lead plaintiffs in the case, Victor Wade of Texas and Karen Loch of Georgia, both bought into the GPB funds as limited partnerships. Wade invested $50K in GPB Holdings II through Sagepoint Financial. Loch invested $75K in GPB Automotive via Royal Alliance Associates. Both brokerage firms are Advisor Group, Inc. subsidiaries.

Loch and Wade are suing on behalf of investors of the GPB Holdings II fund and the GPB Automotive Portfolio Fund. They have named the two funds, GPB Capital Holdings, its CEO David Gentile, COO Roger Anscher, CFO William Jacoby, and a number of Doe parties as the defendants.

DOJ Distributes Another $695M to Over 27,000 Madoff Ponzi Scam Victims

A decade on the heels of Bernard Madoff’s arrest for running a multi-billion dollar Ponzi scam, the US Justice Department has distributed another $695M to over 27,000 of his victims. This is the DOJ’s third payment to investors of the fraud, bringing the total amount issued to nearly $2B.

In a statement, the DOJ said that it plans to restore more than $4B in total to those who sustained losses in the scheme that went on for decades, harming investors from all walks of life, including:

Nearly years after settling two 401K lawsuits for $12 million, participants in Fidelity Investments’ retirement plan are once more suing the firm. The plaintiffs allege that self-dealing cost them money while allowing the financial firm and a number of its affiliated entities to turn a profit.

According to the complaint in Moitoso et al v. FMR LLC et al, Fidelity breached its fiduciary obligation to plan participants by including too many proprietary mutual funds in its $15B 401(K) plan. The plaintiffs claim that compared to 2014 and 2015, there was an increase in in-house funds in the 401(k) plan in 2016: 234 proprietary mutual funds with no non-proprietary funds in the plan, whatsoever.

Fidelity is accused of choosing proprietary investment products to promote its own interests even if they may not have been suitable for plan participants. As a result, contend plaintiffs, compared to the typical 401(k) plan, plan participants have lost $100M more annually because of poor performance and costly fund fees.

U.S. District Judge Sidney H. Stein is refusing to grant class action certification to a group of investors suing UBS Puerto Rico over its sale of proprietary closed-end mutual funds. In particular, the class action complaint dealt with a series of 23 closed-end bond funds that UBS Puerto Rico developed and marketed exclusively to Puerto Rico residents.

These proprietary closed-end funds were comprised of at least 2/3 Puerto Rico debt (and often much higher), resulting in a geographic concentration that placed the owners of such funds at a great risk if anything negative happened on the island. Additionally, the UBS closed-end funds were highly leveraged, typically borrowing $1 for every $1 invested, meaning that any losses in the closed-end funds would be significantly increased.

Notwithstanding the above, the plaintiff investors say that UBS falsely depicted these closed-end mutual funds as safe and secure investments that would garner fund holders tax-free income when, in truth, the mutual funds were “ticking time bombs” that were actually very risky.

Ex-Och Ziff Hedge Fund Executive Indicted in NY Over Alleged Africa Investment Fraud
A grand jury in Brooklyn, NY has indicted Michael Cohen, the ex-head of Och Ziff Capital Management’s European operations on fraud, conspiracy, and other criminal charges. According to prosecutors, Cohen hid a conflict of interest involving a mining company investment and defrauded an institutional client.

The ex-Och Ziff hedge fund executive and his former company are accused of making representations to a UK foundation that then agreed to invest up to $200M in a joint African venture in 2008. Cohen, who allegedly used the joint venture fund to purchase stock from someone who had borrowed money from him for a yacht, is accused of failing to disclose his own stake in the investment. Meantime, the person whom, CNBC reports, owed Cohen money, allegedly used funds from the stock purchase to pay him back $4M.

Cohen is accused of trying to conceal the investment scam by generating a bogus letter and making statements to the SEC, IRS, and FBI that were “materially false.”

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In New York, a federal judge has approved a $31M shareholder fraud settlement reached in the class action securities case filed by investors that purchased stock in former broker-dealer RCS Capital. The plaintiffs, including lead plaintiffs the City of Providence, Rhode Island and the Oklahoma Police Pension Fund, had sued the brokerage firm, its head Nicholas Schorsch, and other ex-executives in 2014 claiming that that RCAP and the other defendants misled investors with “false and misleading statements and omissions” about RCAP’s business prospects.

The investors contend that they purchased RCS Capital stock at prices that were artificially inflated because of these statements. They are claiming massive shareholder losses.

RCAP, once controlled by Schorsch and others, was a privately held brokerage firm that wholesaled American Reality Capital nontraded REITs. Schorsch also owned ARC, which set up and managed the real-estate investment trusts.

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Former REIT CFO’s Criminal Trial is Under Way
Brian Block, the ex-American Realty Capital Properties CFO, is on trial over his alleged involvement in accounting errors that led to the former Nicholas Schorsch-controlled real estate investment trust’s release of inaccurate financial statements during the first two quarters of 2014. As a result of the inaccuracies, ARCP overstated its adjusted funds from operations (AFFO) by about $12M for the end of that first quarter and by about $10.9M for the second quarter while understating its net losses.

This week, Lisa McAlister, a key witness and ARCP’s ex-chief accounting officer gave testimony. She suggested that Schorsch, the REIT’s CEO and chairman at the time, instructed Block on how to distort the number in the books. Block was McAlister’s boss at ARCP.

McAlister said that she was in the room when Schorsch advised Block on how to hide the fraudulent accounting. McAlister said that Schorsch, who has not been charged with wrongdoing in the accounting mistakes, was instructing Block on how to compensate for a 3-cent shortfall in ARCP’s targeted AFFO/share by fudging a certain line item.

McAlister has already pleaded guilty to fraud charges over ARCP’s accounting irregularities.

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The Arkansas Teacher Retirement System is now the lead plaintiff in the class action securities fraud case against Babcock & Wilcox Enterprises. The energy company is accused of hiding significant losses. When Babcock & Wilcox finally disclosed that it was having problems, shareholders lost $300M after the stock price fell.

Prior to that disclosure, the company had admitted to losses involving just one plant that it was constructing in Europe. However, last February 28, the company disclosed that the losses had impacted other projects.

The class action securities case alleges misrepresentation and fraud. It names Babcock & Wilcox, CFO Jenny Apker, and CEO Jim Ferland as defendants. The plaintiffs are accusing them of involvement in a scam to fool the market while engaging in conduct to artificially raise the company’s share price through the concealment of issues in its waste-to-energy business. Business Journal reports that investors are referring to B & W’s eventual admission that up to seven of its projects in Europe had collectively suffered $140M in losses last year.

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A class action securities case has been brought against Western Union Company (UW) by purchasers of the company’s publicly traded securities. The purchasers would have bought the securities between 2/24/12 and 1/19/17. The lead plaintiff is an institutional investor. The lawsuit is UA Local 13 Pension Fund v. The Western Union Company.

The lawsuit contends that Western Union and a number of its current and ex-directors and/or officers made false and misleading statements and did not disclose adverse information about Western Union’s business and compliance policies. Instead, Western Union and senior management purportedly told investors that the Company’s compliance program was robust and in compliance with the laws, both of which the plaintiff claims were false.

Western Union is accused of aiding and abetting a network of international criminal activities, not putting into place compliance programs that were effective, and disregarding misconduct so as to profit. The alleged violations purportedly caused Western Union shares to become artificially inflated.

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