Non-Traded REITs Have Gotten a Bad Rap for Lack of Transparency. Can They Be Trusted?
A recent fraud case brings the sector’s transparency issues back into focus.
February 3, 2020 | John Egan | National Real Estate Investor
Nick Schorsch once reigned as the king of public non-traded REITs. But his empire started to unravel in 2014 after an accounting scandal first came to light.
At the heart of the debacle was American Realty Capital Properties Inc., a publicly-traded net lease REIT. Authorities alleged that Schorsch and some of his colleagues had wrongly siphoned millions of dollars in fees from the merger of the publicly-traded REIT with two non-traded REITs. Brian Block, former chief financial officer of American Realty Capital, was sentenced to 18 months in prison for securities fraud. Block, Schorsch and REIT sponsor AR Capital LLC subsequently agreed to pay more than $60 million in penalties to settle the U.S. Securities and Exchange Commission (SEC) case against them.
American Realty Capital has since rebounded under a new name, VEREIT Inc., and a new management team. And the whole fiasco is now largely in the past, with Phoenix-based VEREIT having spent hundreds of millions of dollars to settle legal action stemming from the American Realty Capital fraud.
