On October 27, 2015, Vanguard Funds (Vanguard) filed suit against VEREIT, Inc. (VEREIT), VEREIT Operating Partnership, AR Capital, ARC Properties Advisors, RCAP Holdings, RCS Capital Corporation, and five company executives in Arizona federal court.
VEREIT (formerly known as American Realty Capital Properties) is one of the largest real estate investment trusts (REITs) in the world. VEREIT was founded in 2010 and is based in Phoenix, Arizona.
In the complaint Vanguard alleges that VEREIT cost investors billions of dollars in a multiyear accounting fraud. From February 2013 to July 2014 VEREIT implemented an “acquisition strategy” purchasing seven major real estate companies at an average of $3 billion. VEREIT’s assets grew from $132 million to $21.3 billion in 2014. During this growth VEREIT allegedly assured investors that its internal controls “were effective” and that the company financial statements “were accurate and could be trusted.”
Investors allege that VEREIT actually did not have an adequate system of controls over its financial reporting and that company financial statements were “riddled with errors.” According to the complaint VEREIT hid its fraud from investors until Oct. 29, 2014 when it disclosed an audit report which “determined that the company ‘intentionally’ misreported and [had] ‘intentionally not corrected’ certain calculations and that prior statements by the company ‘should no longer be relied upon.” After the revelation VEREIT’s stock price fell by 36%.
Non-traded REITs, like VEREIT, carry greater risk than more traditional investments such as stocks and bonds. Because of the greater risk attached to these investments, they are better suited for sophisticated and institutional investors. Broker-dealers have the duty to conduct proper due diligence in order to determine if an investment is suitable for a customer. This includes looking at the investors age, risk tolerance, net worth and investment experience.
If you believe you have been the victim of a possible violation of the securities laws, you may wish to consult an attorney to find out more about your legal rights and options. Investors may contact a securities attorney at Law Office of Christopher J. Gray at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.