Investor Lawyers Blog
On June 30, 2017, the former CFO of American Capital Properties Inc. (“ARCP”), Brian Block, was found guilty of securities fraud and related crimes in connection with reporting false numbers in quarterly filings with the Securities and Exchange Commission (“SEC”). The verdict was handed down following a nearly three-week trial held in the U.S. District Court for the Southern District of New York. A jury returned the verdict less than a day after closing arguments. Mr. Block was convicted of one count of securities fraud, two counts of filing false reports with the SEC, two counts of filing false certifications, and one count of conspiracy.
In 2014, ARCP was set to file its financial statement for the second quarter, when an employee informed Block and Chief Accounting Officer Lisa McAlister that there was a methodological error in some of the firm’s calculations and that its average funds from operations (or AFFO, a key financial metric for real estate investment trusts) was overstated by roughly $0.03 per share. Despite this guidance, no corrective action was taken to address the issue of overstated AFFO. On October 29, 2014, ARCP shares plunged as much as 37% — effectively wiping out roughly $4 billion in market value — after the company publicly stated that certain of its employees had concealed accounting errors.
Following the $23 million accounting scandal, ARCP, a non-traded REIT sponsor, changed its name to VEREIT (from the Latin word “veritas” for truth).
Despite the promises of some industry professionals including financial advisors selling non-traded REITs as a safe, income-oriented investment vehicle, the facts do not align with the optimistic sales pitch. In actuality, non-traded REITs are very risky investments. One of the primary risks associated with non-traded REITs is their high cost, including significant up-front commissions (typically a 7% payout to the adviser and a 3% commission to the broker-dealer employing the financial advisor), as well as other due diligence and administrative costs. Another key risk associated with investing in non-traded REITs has to do with their illiquid nature. As a non-traded security, uninformed investors find out too late that they either cannot sell out of the investment (before a significant time horizon elapses), or if they do sell, it will be at a substantial loss through redemption to the issuer, or through an inefficient sale on a limited and fragmented secondary market.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have sustained losses on non-conventional investments, including non-traded REITs, private placements, and direct participation programs. Investors may contact a securities arbitration lawyer at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.