The Real Deal Miami

Investors sue American Realty for alleged “hidden scheme”

Former chairman Nicholas Schorsch lined himself up for a $94M payday over five years: lawsuit

April 20, 2015 02:15PM

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Nicholas Schorsch

Nicholas Schorsch

From the New York website: Investors in American Realty Capital Properties are accusing ex-chair Nicholas Schorsch of perpetrating a scheme that generated more than $900 million in managers’ fee and bonuses.

In a new class-action lawsuit, these investors say that Schorsch turned a small real estate investment trust into a moneymaking vehicle for himself and his cronies, Bloomberg reported.

Schorsch also allegedly added $20 billion in two years to ARC and charged for services by the 47 entities he controlled, Bloomberg reported.

Teachers’ pension funds that lost money first sued ARC in January, claiming that managers at the company manipulated their cash-flow data to increase their stock value for takeovers. Those deals, however, were “designed” to provide fees for the company’s executives rather than to provide profits to the REIT and its shareholders, according to an updated complaint as cited by Bloomberg.

“This complex and opaque web of interrelated companies is permeated with conflicts of interest and was used to transfer hundreds of millions of dollars to Schorsch-controlled entities in connection with the acquisitions,” the suit states.

In October, the company disclosed that it had intentionally covered up accounting errors that overstated cash flow, which resulted in the resignation of Schorsch, along with at least four other executives, and wiped off $4 billion from the company’s market value. [Bloomberg] — Claire Moses