American Realty Capital Properties, a publicly traded nontraded real estate investment trust, collapsed in 2014 after revealing $3 billion in accounting irregularities. Founder Nicholas S. Schorsch and chief accounting officer Brian S. Block later settled SEC fraud charges for misstating financial results and misleading investors.
How the American Realty Capital fraud unfolded
ARCP was one of the largest nontraded REITs in the United States, with a portfolio of commercial properties spanning 46 states. The company raised billions from retail investors through a network of independent broker-dealers who sold shares at $10 per unit. Schorsch built the firm through rapid acquisitions, creating a complex web of related entities.
In October 2014, ARCP abruptly announced that its accounting team had intentionally misstated financial metrics. The company admitted that adjusted funds from operations had been inflated in the first and second quarters of 2014. The disclosure erased billions in market value and triggered a cascade of investor lawsuits, regulatory investigations, and executive resignations.
Schorsch had cultivated a reputation as a REIT industry pioneer. He previously founded American Financial Realty Trust and sold it to Gramercy Capital. His network of affiliated companies included AR Capital, RCS Capital, and Cole Real Estate Investments. The complex corporate structure made it difficult for investors to track related-party transactions.
Key data and investor losses
| Metric | Amount |
|---|---|
| Accounting irregularities disclosed | $3 billion |
| Investor share price (initial offering) | $10 per share |
| Share price after disclosure | Under $7 per share |
| Total investor losses | $700+ million |
| SEC settlement (Schorsch) | $200,000 civil penalty |
| SEC settlement (Block) | $200,000 civil penalty |
| States with ARCP properties | 46 |
SEC enforcement and executive consequences
The SEC charged Nicholas Schorsch and Brian Block with fraud in 2017. Regulators alleged that Block directed junior accountants to manipulate quarterly financial results to meet performance targets. The accounting team recorded approximately $23 million of expenses in the wrong period and concealed $10 million in collection problems from investors.
Both men settled without admitting or denying the allegations. Schorsch paid a $200,000 civil penalty and agreed to a five-year officer-and-director bar. Block paid a $200,000 penalty and accepted a similar bar. The SEC also charged ARCP’s former CFO and controller with negligence, resulting in smaller fines and suspensions.
ARCP eventually filed for Chapter 11 bankruptcy protection and reorganized as Vereit. Vereit later settled investor litigation for $1 billion, one of the largest REIT class-action recoveries in history. The settlement provided partial recovery to investors who held shares through the collapse.
Red flags investors should have noticed
ARCP grew through relentless acquisitions rather than organic property improvement. The company completed multiple mergers in rapid succession, each increasing complexity and opacity. Related-party transactions with Schorsch’s affiliated entities were extensive and poorly disclosed.
The nontraded REIT structure itself limited liquidity. Investors could not sell shares on a public exchange. Redemption programs were restricted and later suspended. The $10 share price was set by the company, not a market, masking true valuation. High front-end fees and dealer compensation created conflicts of interest that favored sales over suitability.
What affected investors can do now
Investors who held ARCP shares through the collapse may have participated in the Vereit class-action settlement. Those who missed the claims period or purchased through specific broker-dealers may still have arbitration options. Broker-dealers had a duty to perform due diligence on the REIT’s financials before recommending shares to clients.
Securities attorneys can review whether a broker-dealer adequately disclosed the risks of nontraded REITs. Suitability claims may apply if the investment was concentrated in a retiree’s account or if the broker failed to explain the liquidity constraints. Documentation of account statements and broker recommendations strengthens any claim.
Haselkorn & Thibaut fights for investor recovery
Haselkorn & Thibaut is a securities law firm founded by former Wall Street defense attorneys who shifted their practice to represent investors. The firm has recovered over $520 million for clients in securities matters and maintains a 98 percent success rate in resolved nontraded REIT cases. Attorneys are AV Preeminent rated through Martindale-Hubbell, designated as Super Lawyers, and hold a 5.0-star client review average. The firm operates on a contingency basis — no recovery, no fee.
Contact Haselkorn & Thibaut today
Time matters in REIT recovery cases. The earlier you act, the stronger your position. The firm offers a free case evaluation to assess your losses, review your account history, and explain your options under arbitration or settlement.
- Main Phone: 1-888-885-7162
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Offices in Florida, New York, Arizona, Texas, and North Carolina. Former Wall Street defense attorneys with 95+ years of combined experience. No recovery, no fee.
