Court Grants Preliminary Approval to Settle $1 Billion Vereit/ARCP Class Action
Vereit Inc. (NYSE: VER), a publicly traded REIT formerly known as American Realty Capital Properties (ARCP), disclosed that during a hearing on Thursday, the United States District Court for the Southern District of New York granted preliminary approval to settle two lawsuits involving the company, including Witchko v. Schorsch and the $1 billion class action.
Vereit Inc. (NYSE: VER), a publicly traded REIT formerly known as American Realty Capital Properties (ARCP), disclosed that during a hearing on Thursday, the United States District Court for the Southern District of New York granted preliminary approval to settle two lawsuits involving the company, including Witchko v. Schorsch and the $1 billion class action stemming from the legacy company’s highly publicized 2014 accounting scandal. The court scheduled a hearing on January 21, 2020 to consider final approval of both settlements.
ARCP was founded by Nicholas Schorsch and his partners at AR Global (formerly AR Capital), including Brian 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.
Vereit has agreed to pay a total of $738.5 million, while 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 class action.
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 the court grants final approval, 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 previously issued financials.
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.
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 received preliminary approval by the SDNY court.
Vereit shares closed at $9.97 on Thursday.
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.
