Vereit Inc. (NYSE: VER), a publicly traded REIT formerly known as American Realty Capital Properties (ARCP) founded by Nicholas Schorsch and his partners at AR Global (formerly AR Capital), has agreed to pay a total of $738.5 million to settle a class action lawsuit stemming from the legacy company’s highly publicized 2014 accounting scandal. AR Global and its principals, ex-chief financial officer Brian Block, and former auditor Grant Thornton are responsible for an addition $286.5 million to settle the lawsuit.
ARCP was founded by Schorsch and his partners at AR Global including Block, William Kahane, Michael Weil, and Peter Budko. Block and former chief accounting officer Lisa McAlister were convicted of fraudulently inflating ARCP’s second quarter 2014 financials by $13 million. Block was sentenced to 18 months in federal prison for his role in the scandal and is attempting to appeal his conviction, while McAlister cooperated with the prosecution.
After the accounting misdeed was revealed, ARCP’s market value dropped by more than $3 billion and Schorsch eventually resigned as executive chairman. ARCP then replaced its board members and senior management team and rebranded as Vereit – a blend of veritas, the Latin word meaning truth, and REIT.
If approved by the court, the $1.025 billion class action settlement will resolve the claims by plaintiffs relating to the accounting disclosure made by ARCP in October 2014 and in March 2015 regarding the restatement of certain of its previously issued financials, Vereit said in a press release.
Vereit will pay $738.5 million, while former external manager AR Global and its principals will pay $225 million, former CFO Block is responsible for $12.5 million, and the firm’s auditor at the time of the scandal, Grant Thornton, is on the hook for $49 million.
The contributions from AR Global and Block can be satisfied by a combination of cash, limited partner units of the Vereit operating partnership that they held, and dividends on the OP units previously withheld from distribution. The contributions include $32 million in OP units and dividends surrendered to Vereit in July 2019 from a settlement by AR Global with the Securities and Exchange Commission.
Vereit has also agreed to pay a total of $27 million to settle the opt out lawsuits brought by Jet Capital Master Fund L.P. and Lakewood Capital Partners LP, which are not subject to court approval. Three additional derivative actions remain pending in courts other than the Southern District of New York. The company expects to seek dismissal of these actions based on the settlement of the derivative action Witchko v. Schorsch, which is currently pending in the SDNY. The class action and derivative settlements are subject to court approval.
“VEREIT is pleased to enter into agreements that we expect will bring these litigations to a conclusion,” said Glenn Rufrano, Vereit chief executive office. “The company believes the settlements are in [its] best interest and that of its shareholders, as they eliminate the risk of adverse judgments at trial, put an end to timing uncertainties, and remove the burdens and costs of these litigations.”
Vereit noted that it has been cooperating with the SEC staff’s investigation related to the matters at issue in the class action since its inception and continues to have discussions to resolve potential charges the SEC may bring against the company.
In addition, Vereit told the regulators that it plans to seek recovery of approximately $34 million paid to the SEC by AR Global and Block in connection with the previously announced settlement between them and the SEC for disgorgement and penalties.
Vereit shares closed at $9.65 on Monday.
Vereit has previously settled claims totaling $254.4 million, brought by entities that hold approximately 35.3 percent of its stock, including Vanguard Specialized Funds, BlackRock ACS US Equity Tracker Fund, Clearline Capital Partners, Eton Park Fund, HG Vora Special Opportunities Master Fund, Pentwater Equity Opportunities Master Fund, PIMCO Diversified Income Fund, Reliance Standard Life Insurance Co, and Twin Securities, Archer Capital Master Fund, Atlas Master Fund, Fir Tree Capital Opportunity Master Fund, and Cohen & Steers Institutional Realty Shares.
VEREIT owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S., with total real estate investments of $15 billion including approximately 4,000 properties and 90.6 million square feet.