Moody’s Reduces American Realty Capital Properties Credit Rating to Junk Status, REIT’s Founder Nicholas Schorsch Steps Down

American Realty Capital Properties’ (ARCP) credit rating was just downgraded to junk status by Moody’s Investors Service (MCO). The credit rater is now rating the real estate investment trust with a Ba1, which is just under investment grade. Moody’s has also given ARCP a negative outlook. The downgrade comes following this week’s management shakeup at the REIT and its disclosure several weeks ago of massive accounting irregularities that were covered up.

This week, American Reality Capital Properties’ chairman and founder Nicholas Schorsch stepped down, as did COO Lisa Beeson and chief executive David Kay. In October, ARCP’s chief accounting officer and CFO also resigned after an $23 million accounting mistake was announced.

The change in management comes weeks after the REIT disclosed that it misstated financial results in 2014’s first quarter and purposely concealed the error by misrepresenting second quarter results. After the REIT revealed the $23 million accounting error, a number of firms suspended trading in nontraded real estate investment trusts that were run and backed by companies under Schorsch. The firms included Fidelity, Charles Schwab (SCHW), Pershing, LPL Financial (LPLA), AIG Advisor Group, National Planning Holding, Securities America, and even Schorsch’s Cetera Financial Group broker-dealer network.

In other recent ARCP news, RCS Capital Corp., a company also founded by Schorsch, has consented to pay the REIT $60 million to resolve a lawsuit over the canceled sale of Cole Capital Partners LLC, which would have been a $700 million transaction. As part of the deal, RCS Capital will pay a $42.7 million break up fee plus a $15.3 million two-year promissory note.

ARCP sued RCS Capital Corp. after the latter withdrew from its deal to acquire Cole Capital Advisors Inc. and Cole Capital Partners. ARCP accused RCS of breaching the purchase agreement. RCS wanted to distance itself from ARCP in the wake of the accounting scandal.

Exiting American Realty Capital Properties, Schorsch to give up $100 million in pay, Investment News, December 16, 2014

Moody’s Cuts American Realty Capital Properties to Junk, The Wall Street Journal, December 16, 2014

Schorsch’s RCS Capital Jumps After Settling ARCP Lawsuit, Bloomberg, December 4, 2014

More Blog Posts:
Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker fraud Blog, October 30, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014


SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants
, Institutional Investor Securities Blog, December 3, 2014