Articles Tagged with REIT

Investors who placed their funds in the Texas-based United Development Funding IV real estate investment trust are asking a federal judge to approve a $13.5M REIT fraud settlement they’d reached with the company over the allegations that it had been run like a Ponzi-like scam and concealed this. The plaintiffs contend that UDV IV and its affiliates not only made false statements but also they did not disclose material facts involving business and operations.

They brought their REIT fraud case against the UDF companies three years ago, accusing the defendants of using investors’ funds from newer offering to pay investors who had gotten involved in earlier offerings. The investors, who want class certification, alleged that disclosures they were offered were misleading and lending practices lacked transparency.

Both sides eventually arrived at the $13.5M settlement—$10.5M in cash and another $3M once the REIT hits its $75M cash flow target in two years. This deal is separate from a settlement the plaintiffs reached with UDF accountants, as well as those that underwrote and sold the allegedly fraudulent offerings.

American Realty Capital Properties’ (ARCP) credit rating was just downgraded to junk status by Moody’s Investors Service (MCO). The credit rater is now rating the real estate investment trust with a Ba1, which is just under investment grade. Moody’s has also given ARCP a negative outlook. The downgrade comes following this week’s management shakeup at the REIT and its disclosure several weeks ago of massive accounting irregularities that were covered up.

This week, American Reality Capital Properties’ chairman and founder Nicholas Schorsch stepped down, as did COO Lisa Beeson and chief executive David Kay. In October, ARCP’s chief accounting officer and CFO also resigned after an $23 million accounting mistake was announced.

The change in management comes weeks after the REIT disclosed that it misstated financial results in 2014’s first quarter and purposely concealed the error by misrepresenting second quarter results. After the REIT revealed the $23 million accounting error, a number of firms suspended trading in nontraded real estate investment trusts that were run and backed by companies under Schorsch. The firms included Fidelity, Charles Schwab (SCHW), Pershing, LPL Financial (LPLA), AIG Advisor Group, National Planning Holding, Securities America, and even Schorsch’s Cetera Financial Group broker-dealer network.

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