AR Capital & Execs Settle SEC Charges for $60 Million
According to a press announcement yesterday, the Securities and Exchange Commission charged AR Capital LLC, its founder Nicholas S. Schorsch, and its former CFO Brian Block with wrongfully extracting millions of dollars in connection with two separate mergers between real estate investment trusts (REITs) that were reportedly sponsored and externally managed by AR Capital.
The regulator alleges that between late 2012 and early 2014, AR Capital arranged for American Realty Capital Properties Inc. (ARCP), a publicly-traded REIT, to merge with two publicly-held, non-traded REITs, American Realty Capital Trust III Inc. and American Realty Capital Trust IV Inc.
The SEC alleges that AR Capital, Schorsch, and Block, acting in breach of the relevant proxy disclosures, inflated an incentive fee in both mergers. This improper calculation purportedly allowed them to obtain approximately 2.92 million additional ARCP operating partnership units as part of their incentive-based compensation.
Further, the complaint alleges that the defendants wrongfully obtained at least $7.27 million in unsupported charges from asset purchase and sale agreements entered into in connection with the mergers.
American Realty, under new management, is now called Vereit Inc. (VER.N), following a 2014 accounting scandal.
The defendants reportedly agreed to settle the matter by, among other things, cumulatively agreeing to over $60 million in disgorgement, prejudgment interest and civil penalties.
The SEC also fined AR Capital $14 million, Schorsch $7 million and Block $750,000, according to the press announcement.
The White Law Group continues to investigate claims involving broker-dealers who may have unsuitably recommended AR Capital REITs to investors.
Non-Traded REITs are complex products that involve a significant degree of risk and arguably unsuitable for many investors. Brokerage firms that overlooked suitability requirements or failed to disclose the risk when recommending American Realty Capital REITs to investors, may be liable for losses.
If you invested in AR Capital Trust or another non-traded REIT and would like to discuss your litigation options with a securities attorney, please call The White Law Group at 1-888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.