David Kay, former CEO of troubled American Realty Capital Properties Inc., has hired a big gun to defend him against a defamation suit from a former employee. Last week, Robert Khuzami, former head of enforcement at the Securities and Exchange Commission, signed on as Mr. Kay's attorney in the defense of the complaint filed in December by Lisa McAlister, the former chief accounting officer for the real estate investment
trust, which trades under the ticker ARCP.
In mid-December, Nicholas Schorsch, ARCP's founder and chairman, resigned without explanation from the
REIT. Two other ARCP executives, including Mr. Kay, also resigned.
The same week, Ms. McAlister filed her defamation suit in New York State Supreme Court in Manhattan, claiming she and the company's chief financial officer, Brian Block, were made scapegoats by Mr. Schorsch and other executives for a $23 million accounting error cover-up that rocked the Schorsch empire when it was disclosed in October.
A former federal prosecutor for the U.S. Attorney's office in the Southern District of New York, Mr. Khuzami was director of the SEC's Division of Enforcement from March 2009 to February 2013. He is now a partner at Kirkland & Ellis.
“I call it lawyering up. It's the equivalent of going to war, and you get the biggest and best guy out there,” said Richard Roth, a New York attorney who focuses on securities litigation. “It puts the perception out there that, if you want to fight me, you're going to have to also fight the SEC's former head of enforcement.”
“There's nothing wrong with it,” Mr. Roth said. “A move like this doesn't mean that the defense has exposure or liability. They're simply fighting with the best and biggest known guns.”
Neither Mr. Kay nor Mr. Khuzami returned calls for comment on Wednesday.
Meanwhile, ARCP announced a new management hire at its subsidiary Cole Capital, the wholesaling broker-dealer for nontraded REITs that has seen its sales drop off a cliff since the October accounting error was revealed.
Cole Capital said Wednesday that Terrence Mullen is joining the company as senior adviser. He is a 25-year veteran of the financial services industry and has held senior leadership positions at Sun Life Financial,
AIG SunAmerica and Lincoln Financial Distributors. While those companies distribute insurance products and not REITs, each of them relies on independent broker-dealers and their advisers to sell their products, just as nontraded
REIT sponsors like Cole Capital do.
