Former Schorsch REIT reaches $90 million settlement with Vanguard

The mutual fund giant was the largest shareholder of American Realty Capital Properties Inc. when it reported inflated financial results because of a $23 million accounting mistake.
JUN 12, 2018

Vereit Inc., a net lease real estate investment trust, has agreed to pay mutual fund giant Vanguard $90 million as part of a settlement stemming from an accounting scandal four years ago when the company was controlled by Nicholas Schorsch, the former nontraded REIT czar. Vanguard was the largest shareholder of Vereit, which was known as American Realthy Capital Properties Inc, or ARCP, when the scandal broke. Through various funds, the mutual fund company owned about 13% of the firm's outstanding shares. In the fall of 2014, ARCP revealed a $23 million accounting error that had resulted in the company reporting inflated financial results. ARCP's stock plunged 21% on the day the accounting mistake was announced and has never recovered. By the end of 2014, Mr. Schorsch had resigned from the company as its chairman. In March 2015, ARCP restated financial results going back to 2013, hired a new CEO and was eventually rechristened Vereit in order to distance itself from the scandal. Vereit has been sued by other investment managers, notably TIAA-Creff, so other payments to shareholders could possibly happen in the future. Vanguard sued Vereit, Mr. Schorsch and other past executives in October 2015, alleging "a multi-year fraud and attempted cover-up orchestrated by the top corporate executives at ARCP" when Mr. Schorsch was CEO and chairman of the company. The settlement between Vereit and Vanguard also leaves open the potential for Vereit to sue Mr. Schorsch and other former senior executives of the company in the future. It gives Vereit the right to pursue claims against other named defendants in the Vanguard lawsuit, according to a press release from Vereit. The company announced the settlement on Monday, saying that "Vereit is pleased to have brought Vanguard's lawsuit to a conclusion," according to a press release. Mr. Schorsch has no connection to Vereit at this time. A spokesman for AR Global, the privately held real estate investment manager Mr. Schorsch controls, said it had no commnent on the Vereit-Vanguard settlement. The fallout from the ARCP 2014 accounting scandal has been significant. Sales of nontraded REITs sponsored by Mr. Schorsch eventually collapsed, resulting in the 2016 bankruptcy of a broker-dealer holding company he controlled, RCS Capital Corp., or RCAP. Brian Block, ARCP's former chief financial officer, was charged in 2016 by federal prosecutors with securities fraud and was later convicted and sentenced to 18 months and fined $100,000. The government had sought a sentence of at least seven years. Mr. Block is appealing the conviction. Later that year, RCAP emerged from bankruptcy as Cetera Financial Group, a privately controlled network of six independent broker-dealers.

Latest News

Farther debuts AI investment proposal tool for advisors to win clients
Farther debuts AI investment proposal tool for advisors to win clients

"Im glad to see that from a regulatory perspective, we're going to get the ability to show we're responsible [...] we'll have a little bit more freedom to innovate," Farther co-founder Brad Genser told InvestmentNews.

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

Are you optimally efficient?
Are you optimally efficient?

Taking a systematic approach to three key practice areas can help advisors gain confidence, get back time, and increase their opportunities.

Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida
Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida

Meanwhile, Osaic lures a high-net-worth advisor from Commonwealth in the Pacific Northwest.

Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B
Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B

The deals, which include its first stake in Ohio, push the national women-led firm up to $47 billion in assets.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.