Schorsch REIT sued for providing “misleading” information to shareholders

American Finance Trust has lost $1B in market value since its July IPO

TRD New York /
Oct.October 26, 2018 06:30 PM

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.


Related Articles

arrow_forward_ios
Keith Gelb and Bill Walton with 63 and 67 Wall Street (Rockpoint, Google Maps)

Rockpoint Group settles alleged rent-stabilization violations for $5M

Rockpoint Group settles alleged rent-stabilization violations for $5M
Mary Trump and President Donald Trump (Photos via LinkedIn and Getty)

Mary Trump sues her family for real estate inheritance “fraud”

Mary Trump sues her family for real estate inheritance “fraud”
331 Park Avenue South (Google Maps)

Investors accuse Prodigy Network of fraud at troubled Park Ave development

Investors accuse Prodigy Network of fraud at troubled Park Ave development
220 East 42nd Street and SL Green CEO Marc Holliday (SL Green)

SL Green, Chetrit settle lawsuit over Daily News building

SL Green, Chetrit settle lawsuit over Daily News building
A U.S. District judge has given tenants a seat at the table in the legal challenges to New York’s rent law, defying attorneys representing landlords. (iStock)

Tenants get seat at table for legal challenges to rent law

Tenants get seat at table for legal challenges to rent law
Sonder CEO Francis Davidson and Nathan Berman with 20 Broad Street (Images via CityRealty; Twitter)

Sonder accuses Metro Loft of hiding legionella at 20 Broad

Sonder accuses Metro Loft of hiding legionella at 20 Broad
305 East 61st Street and Jason Carter of Carter Management Corp. (Google Maps; Carter Management Corp.)

Upper East Side condo conversion fetches $51M at auction

Upper East Side condo conversion fetches $51M at auction
(iStock)

Is winter coming? Real estate stocks dragged down by 4th week of market decline

Is winter coming? Real estate stocks dragged down by 4th week of market decline
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...