Shares of American Realty Capital Properties plunged on Wednesday after the Manhattan-based company, one of several real estate investment companies founded by Chairman Nick Schorsch, announced that it had misrepresented its earnings and had dismissed two top accounting executives.
By midday Wednesday, shares of the publicly traded real estate investment trust had plunged 30%. Among the disclosures the company made was that it had inflated a key earnings measure by about $23 million in the first half of 2014 and that its financial statements from 2013 "should no longer be relied upon."
"The accounting issues are unacceptable, and we are taking the personnel and other actions necessary to ensure that this does not happen again," CEO David Kay said in a statement released with ARCP's disclosure of its accounting trouble.
The firm said it had fired its CFO, Brian Block, and its chief accounting officer, Lisa McAlister, and replaced them.
ARCP is part of a group of real estate investment companies founded by Mr. Schorsch, who acquired a stake in West Side office tower Worldwide Plaza last year in a deal that valued that building at $1.45 billion. Mr. Schorsch made that purchase through another investment trust entity called New York REIT. He is the chairman of both that firm and ARCP.
As that acquisition was being made in 2013, RXR Realty, a major commercial landlord in the city, launched a lawsuit against New York REIT. The suit alleged that Mr. Schorsch’s firm had originally agreed to partner with RXR to buy Worldwide Plaza, but instead used the company’s in-depth financial analysis of the property to make its own bid without RXR. New York REIT won that suit and completed its purchase of the stake alone.
A lawyer who represents shareholders of ARCP said that owners of the company’s stock were considering a lawsuit.
"Reading between the lines, our suspicion is that the two top accounting officers saw the error in the earnings and let it go," said Jeff Block, a lawyer at Block & Levitan, based in Boston. "You have a very profound drop in value any time you have accounting issues like this because it calls into question the credibility and honesty of the company."
According to Forbes, ARCP was created by the merger of two nontraded REITs founded by Mr. Schorsch. This month, he stepped down as CEO of the company, handing over the reins to Mr. Kay in a move that had been done to increase financial transparency, reports suggested.
By midday Wednesday, shares of the publicly traded real estate investment trust had plunged 30%. Among the disclosures the company made was that it had inflated a key earnings measure by about $23 million in the first half of 2014 and that its financial statements from 2013 "should no longer be relied upon."
"The accounting issues are unacceptable, and we are taking the personnel and other actions necessary to ensure that this does not happen again," CEO David Kay said in a statement released with ARCP's disclosure of its accounting trouble.
The firm said it had fired its CFO, Brian Block, and its chief accounting officer, Lisa McAlister, and replaced them.
ARCP is part of a group of real estate investment companies founded by Mr. Schorsch, who acquired a stake in West Side office tower Worldwide Plaza last year in a deal that valued that building at $1.45 billion. Mr. Schorsch made that purchase through another investment trust entity called New York REIT. He is the chairman of both that firm and ARCP.
As that acquisition was being made in 2013, RXR Realty, a major commercial landlord in the city, launched a lawsuit against New York REIT. The suit alleged that Mr. Schorsch’s firm had originally agreed to partner with RXR to buy Worldwide Plaza, but instead used the company’s in-depth financial analysis of the property to make its own bid without RXR. New York REIT won that suit and completed its purchase of the stake alone.
A lawyer who represents shareholders of ARCP said that owners of the company’s stock were considering a lawsuit.
"Reading between the lines, our suspicion is that the two top accounting officers saw the error in the earnings and let it go," said Jeff Block, a lawyer at Block & Levitan, based in Boston. "You have a very profound drop in value any time you have accounting issues like this because it calls into question the credibility and honesty of the company."
According to Forbes, ARCP was created by the merger of two nontraded REITs founded by Mr. Schorsch. This month, he stepped down as CEO of the company, handing over the reins to Mr. Kay in a move that had been done to increase financial transparency, reports suggested.
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