The Real Deal New York

Schorsch REIT sued for providing “misleading” information to shareholders

American Finance Trust has lost $1B in market value since its July IPO
By Christian Bautista | October 26, 2018 06:30PM

Nick Schorsch

Shareholders of Nicholas Schorsch-controlled REIT American Finance Trust are suing over an IPO that wiped $1 billion off the company’s market value.

The REIT, which started trading on the Nasdaq on July 19, opened at $13.15 per share and closed at $15 per share. On Oct. 14, the company’s stock price closed at $14 per share, 40 percent lower than its net asset value of $23.56 per share.

The plaintiffs, led by a certain Terry Hibbard, gained shares in American Finance Trust after it merged with another Schorsch REIT, American Realty Capital – Retail Centers of America. To gain shareholder approval for the merger, the suit alleged that American Finance Trust released a registration statement that contained “materially incomplete and misleading information.” According to the lawsuit, the documents did not outline the possible negative impacts of the merger on the financial performance of the REIT. The plaintiffs alleged that American Finance Trust violated a Securities and Exchange Commission directive by not disclosing that it failed to publicly list its stocks in 2015 and 2016. The suit also claimed that the company listed its stocks in the Nasdaq to avoid the New York Stock Exchange’s corporate governance standards.

The merger gained shareholder approval in February 2017. Analysts criticized the deal, with one investment bank making a connection the anniversary of the 1929 St. Valentine’s Day Massacre. “The 2017 St. Valentine’s Day Massacre of the RCA shareholders is one for the ages in terms of assaults on the sensibilities of investors,” investment banking firm Robert A. Stanger & Co. stated in a report.

Schorsch, who was personally named in the lawsuit, owns a 56 percent stake in AR Global, American Finance Trust’s sponsor. His wife also owns a 7.4 percent stake in the firm, court documents state. The lawsuit brought up Schorsch’s previous legal troubles with American Realty Capital Properties, from which he resigned as CEO after an accounting scandal. The complaint contained quotes from former American Realty Capital executive Lisa McAlister, who said during court proceedings that Schorsch is “very demanding” and “an overall bully.”

The shareholders are seeking a court order to rescind the sale of American Finance Trust stocks. They are also seeking damages to cover stockholder losses. American Finance Trust did not immediately respond to requests for comment.

The case adds to the extensive legal history involving Schorsch firms. Earlier this month, VEREIT, which was previously American Realty Capital, paid $85 million to settle class-action lawsuits in relation to the accounting scandal. The payout adds to the firm’s previous $90 million settlement to Vanguard.