Nicholas Schorsch, the former chairman of real estate investment firm American Realty Capital Properties, allegedly orchestrated a hidden scheme that generated $917 million in fees and bonuses, according to new documents filed in a Manhattan court.
The complaint, the details of which were outlined in a Bloomberg report, accused Schorsch of charging fees through 47 entities that he controlled, in the process raising $20 billion in assets in two years.
He stepped down from his post in ARCP last December in the wake of an internal accounting probe. Representatives for Schorsch declined to comment on the charges.
Schorsch has a network of businesses and was once the CEO of more than a dozen companies. He now heads AR Capital Acquisition Corp., a blank check company that raised $240 million in its IPO last October. Blank check companies are entities with no purpose other than merging with another firm. The offering came over a month before the accounting irregularities were disclosed by ARCP.
Last month, American Realty Capital Properties named Glenn Rufrano as its new CEO, replacing William Stanley, who held the position in an interim basis. Rufrano previously held leadership positions in O’Connor Capital Partners and Cushman & Wakefield.
The class action suit, which was originally filed by teachers’ pension funds last January, accused ARCP’s managers of inflating stocks for takeovers. The new version of the complaint, which was filed in April 17, detailed how the proceeds supposedly went to the pockets of company executives instead of being remitted to shareholders.
“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 complaint read.
The lawsuit, which was lodged by a group of ARCP investors, accused Schorsch and other executives of falsifying cash flow data to improperly inflate the company’s stock value.
According to the updated complaint, ARCP was also charged for goods and services that have no record of being delivered. The company was said to have been billed $510 million for deal-related commissions and fees and $63 million for advice, public relation services, office supplies and furniture.
John Bacon, the VP for Corporate and Real Estate Marketing at ARCP, declined to comment on the updated charges, however, he pointed towards the findings of his company’s Audit Committee, which were released last March.
The investigation found that the company’s property portfolio remained sound in spite of accounting irregularities and a subsequent cover-up.
The probe led to the resignation of Schorsch and other ARCP executives. The company also severed ties with companies where Schorsch holds an executive or director role. Currently, the Securities and Exchange Commission, the US State Department and the state of Massachusetts are conducting their own investigation into the matter.
