Vereit Settles with Vanguard Over ARCP’s 2014 Accounting Scandal
Vereit Inc. (NYSE: VER), a publicly traded REIT formerly known as American Realty Capital Properties, has agreed to pay $90 million to Vanguard Specialized Funds to settle a lawsuit over the company’s highly publicized accounting scandal made public in October 2014.
Vereit Inc. (NYSE: VER), a publicly traded REIT formerly known as American Realty Capital Properties, has agreed to pay $90 million to Vanguard Specialized Funds to settle a lawsuit over the company’s highly publicized accounting scandal made public in October 2014.
ARCP was founded by Nicholas Schorsch and his partners at AR Global (formerly AR Capital) including William Kahane, Brian Block, Michael Weil, and Peter Budko.
Block and former chief accounting officer Lisa McAlister were accused of fraudulently inflating ARCP’s second quarter 2014 adjusted funds from operations by $13 million hours before filing the results with the SEC to make it appear that it had met certain targets when, in fact, it had fallen short.
More than $3 billion of the company’s market value was destroyed following the fraud revelation, which triggered a wave of C-suite resignations, including that of Schorsch himself.
According to the Vanguard lawsuit, “the company’s stock price plummeted by over 36 percent…causing the plaintiffs and other investors to lose billions of dollars.” Vanguard’s holdings accounted for approximately 13 percent of Vereit’s outstanding shares of common stock.
Following the scandal, American Realty Capital Properties replaced its board members and senior management team and rebranded the company as Vereit – a blend of veritas, the Latin word meaning truth, and REIT.
Approximately one year after the accounting scandal was revealed, Vanguard filed its lawsuit against Vereit, and named a number of current and former AR Global-related entities and executives, including Schorsch, Block, McAlister, AR Capital, RCS Capital Corp. (NYSE: RCAP), former ARCP president David Kay, and former chief operating officer Lisa Beeson.
Vanguard has agreed to dismiss all claims against Vereit and the other defendants with prejudice in exchange for the $90 million sum. While the settlement agreement contains mutual releases by both companies, Vereit retains the right to pursue claims against the other defendants in the action, including claims for contribution for amounts paid in the settlement. The agreement does not contain any admission of liability, wrongdoing or responsibility by any of the parties.
“Vereit is pleased to have brought Vanguard’s lawsuit to a conclusion,” the company said in a statement. “In light of the fact that the Vanguard lawsuit was proceeding in a different federal district court than the other related cases pending against Vereit, [we believe] that if the Vanguard lawsuit continued, it could find itself facing successive trials on similar factual and legal issues that could have subjected Vereit to increased legal risk. Based on these factors and others, we believe that the settlement with Vanguard is in [our] best interest.”
Block is currently awaiting an 18-month federal prison sentence for his role in the accounting fraud, while McAlister cooperated with the prosecution and testified against her former boss. Neither Schorsch nor any other AR Global partner has been charged in the ARCP or other ARC-related scandals.
Vereit’s shares opened at $7.18 Monday morning and closed at $7.20, an increase of 0.28 percent.
Vereit is a full-service real estate operating company which owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S. The company has a total asset book value of $14.5 billion including approximately 4,100 properties and 94.7 million square feet.
