Disgraced AR Capital founder Nicholas Schorsch, former CFO Brian Block and what’s left of the once high-flying real-estate firm will pay $60 million to investors and regulators for falsifying books and records of American Realty Capital Properties from late 2012 to early 2014.
According to the Securities and Exchange Commission, the two executives and AR Capital “wrongfully obtaining millions of dollars in connection with two separate mergers between real estate investment trusts (REITs) … sponsored and externally managed by AR Capital.”
In its complaint, the SEC says AR Capital arranged for ARCP to merge with two other publicly held, nontraded REITs; as part of the transaction, Schorsch and Block “inflated an incentive fee in both mergers.”
This resulted in them getting nearly 3 million extra ARCP partnership units in their incentive-based compensation. Plus, the two “wrongfully obtained at least $7.27 million in unsupported charges from asset purchase and sale agreements” tied to the mergers.
“REIT managers and their professionals have an obligation to tell the truth when making disclosures to shareholders about their compensation,” said Marc P. Berger, head of the SEC’s New York Regional Office, in a statement. “As we allege in our complaint, AR Capital and its partners Schorsch and Block failed to do so and benefited themselves greatly at the expense of shareholders.”
Without admitting or denying the allegations, Schorsch, Block and AR Capital consented to entry of the final judgment, about $39 million of which will go to investors. The deal includes civil penalties of $14 million against AR Capital, $7 million against Schorsch, and $750,000 against Block.
Before it went under, American Realty Capital also set up a separate distribution entity, RCS Capital — which bought Cetera Financial Group and several other broker-dealers in 2014 and 2015, and then went bankrupt in 2016. (Schorsch has no involvement in any of these businesses today).
— Related on ThinkAdvisor: