American Realty Capital Properties Inc.'s former chief accounting officer, Lisa McAlister, has filed a suit in New York state court accusing Nicholas Schorsch, former chairman of the company, of ordering her and other executives to alter quarterly financial results.
Ms. McAlister, who joined the company in November 2013, said that in February she noticed the company had improperly calculated its adjusted funds from operations, or AFFO, in a way that overstated results in the first quarter of 2014 by 3 cents per share.
When Ms. McAlister brought the error to the attention of David Kay, ARCP's chief executive officer, she said Mr. Kay told her and the chief financial officer, Brian Block, not to change the error.
Later, in July, on a conference call regarding second-quarter earnings, Mr. Schorsch allegedly instructed Mr. Block to shift the numbers for the quarter in order to conceal the previous improper reporting.
“In other words, Mr. Schorsch instructed Mr. Block to take steps that would cover up the improper change in accounting with both further fraudulent accounting and a proper change that helped the cover up,” Ms. McAlister's lawsuit states.
Ms. McAlister also allegedly went to the company's auditors at Grant Thornton to call attention to the issues, but was told that she could still sign off on the report “as is,” according to the complaint. She went ahead and filed inaccurate results for the second quarter, the complaint states.
News of the suit was first reported by the Wall Street Journal. Ms. McAlister is seeking $50 million, according to the complaint.
The company, which trades as ARCP, was down more than 5% Thursday afternoon in New York. Shares of RCS Capital Corp., a related company of which Mr. Schorsch is still chairman, were down more than 15%.
Andy Merrill, a spokesman for ARCP, could not immediately be reached for comment. Andrew Backman, a spokesman for RCS Capital Corp., also was unavailable. And a spokeswoman for Grant Thornton, Kristen Bugaris, declined to comment, citing client confidentiality.
(More: ARCP delays third-quarter earnings report)
The filing in New York State Supreme Court in Manhattan comes just over a month and a half after ARCP announced that Mr. Block and Ms. McAlister had resigned because a
$23 million accounting error in the first half of the year was intentionally left uncorrected.
But Ms. McAlister said in her suit that she was terminated and did not resign.
She claims in the complaint that Mr. Schorsch and senior executives “caused the company to terminate Ms. McAlister's employment" once it was clear from an internal audit that the improper calculations could not be kept private. Ms. McAlister said she was terminated "in retaliation for blowing the whistle on ARCP and to use her publicly as a scapegoat for defendants fraudulent conduct.”
Ms. McAlister said that the press release issued by the firm on October 29 falsely blamed her for the accounting irregularities and she is no longer employable, has “no means of support, and no continuing health insurance for her two special needs children -- an autistic child and a child with cerebral palsy.”
Mr. Schorsch
stepped down as chairman of ARCP on Monday. David Kay also stepped down as chief executive officer and from ARCP's board of directors. The suit attributed their resignation to a letter sent in advance of the lawsuit's filing that informed Mr. Schorsch and Mr. Kay of the seriousness of her allegations.
“It is apparent from these recent events—all of which post-date by six weeks Ms. McAlister's termination—that the company now realizes Mr. Schorsch is to blame, which means, in effect, that the company admits it defamed Ms. McAlister,” according to the complaint.
(More: Accounting fiasco highlights tangled web behind Nicholas Schorsch's empire)
