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FBI To Probe Accounting Fraud At Multi-Billion REIT
While the Fed and the BOJ were by far the biggest news of the past week, explicitly admitting that the world simply can not exist without one central bank passing the monetization torch to someone else, a surprising, and scare for its shareholders, development took place when REIT American Realty Capital Properties, with a then-market cap of over $10 billion, announced, under the cover of the Fed ending QE3, that it had overstated its adjusted funds from operation, a cash flow key metric used by REITs, from the first- and second-quarters of 2014.As the WSJ reminds us, while the amount of money involved, some $23 million, was "relatively small", the irregularities resulted in the resignation of the company’s chief financial officer, Brian Block, and chief accounting officer, Lisa McAlister.The result: a crash in the stock that wiped out nearly 30% or nearly $4 billion in market cap.
A bigger question of course is why did a multi-billion dollar company feel compelled to lie about what on the surface is peanutes, and what other lies plague the company's cash flow and income statements, not to mention its balance sheets. That, and also because there is never just one lack of cashflow cockroach, one wonders which other REITs have been systematically overstating their financial health.
We may learn soon, because as Reuters reports the Federal Bureau of Investigation is conducting the investigation along with prosecutors from U.S. Attorney Preet Bharara's office in New York, the sources said. Further details of the probe could not be learned.
American Realty Capital Properties said on Wednesday it would have to restate earnings after it discovered employees "intentionally made" accounting mistakes that caused it to understate net losses during the first half of 2014. Its chief accounting officer and chief financial officer resigned on Tuesday.
Andy Merrill, a spokesman for American Realty Capital, had no immediate comment when contacted by Reuters.
A criminal probe raises the stakes for the company, which has seen its shares fall almost 30 percent since the disclosure of the accounting issues on Wednesday, wiping out around $4 billion of its market value. The U.S. Securities and Exchange Commission is also investigating the company, according to the Wall Street Journal.
And once the FBI is ready done with ARCP, there are a whole lot of other "successful" real estate companies that are probably comparably rife with fraud. Because what ARCP has done is precisely the same as all those other "successful" roll ups have engaged in over the past few years : American Realty Capital Properties, which went public in 2011, is one in a web of investment companies and brokerages that have been rapidly built up over the past seven years by real estate investor Nicholas Schorsch.
Schorsch served as the chief executive of the company until Oct. 1, when he was succeeded by President David Kay.
Since then, Schorsch has turned his focus to RCS Capital, an affiliated investment management firm that he founded in 2012 and where he serves as executive chairman.
Schorsch, who began building a portfolio of commercial real estate properties in the mid 1990s and is considered a pioneer in non-traded REITs, has been expanding RCS into a broad retail brokerage platform that would serve as a one-stop-shop for alternative investments. Its legion of brokers hit 9,700 just a little over a year after Schorsch began building it through a series of acquisitions.
On the same day that Schorsch stepped down as CEO, American Realty Capital Properties said it was selling its private fund management business Cole Capital to RCS Capital for $700 million.
Over the past year and a half, RCS has also bought a number of independent broker-dealers and investment advisors as well, including Cetera Financial Group, VSR Financial and J.P. Turner.
Some did raise red flags...
Schorsch's fast-paced deal making has recently drawn some criticism, however.
The hedge fund Marcato Capital Management, which at the time held 2.4 percent of American Realty Capital's outstanding shares, said in a letter in June that the company was improperly diluting its stock with new issuances and engaging in too many acquisitions in too short a time.
... which ironically is precisely the same that Bill Ackman-darling Valeant has been doing as well. One wonders when that particular house of cards will implode under its own (hollow) cash-free, non-GAAP weight? Whenever it doe, one can be sure that the FBI will be on the scene... just after the fraud is revealed for all to see.
But the biggest question is when precisely will the FBI conduct a criminal probe in an accounting scandal before it becomes public and before thousands of shareholders are wiped out? Of course, that would mean admitting that the whole premise of "earnings" and "cash flow" is as credible and realistic as the "fundamental" case for the S&P at just why of 2050, or 19x "earnings."
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the FBI
lololololololol
go blow a banker ya putzes
Get Holder on it.
I give you THE FBI!!
Well color me surprised! They're just taking advantage of ZIRP and GAAP 2.0, you can't blame them. I'm sure the execs & associated megabux are in a nice non-extradition country by this time next year.
Enron was a great buy at a 8 PE.......oh wait
Make of it what you will, but insiders were big BUYERS of the stock before the fall earlier this month. $10 million worth of stock in October alone.
https://finance.yahoo.com/q/it?s=ARCP+Insider+Transactions
So they must be some of the stupidest people on earth. Either that or their fat fingers hit the wrong "buy" key by mistake.
naaaaa.
idiots like us think red lobster rent , 10% yield! monthly payments .... and aka boom up ur ass.
It's funny at this stage.
silver. fucked up the ass. check.
ARCP . dP ,check.
CYTX. burned out.
MNKD. just lol.check.
so ZH please an article on my biggest postion SDRL , hammered to the ground.
I am sure a 6 year old or a dart thrower could of done better than me this year.When I get a couple of ALL OUT years , and get my ass blown off , the next year is usually fantastic. Not calling it !
Yeah, a "probe", to discover nothing or impose a 2% fine on profits.
I don't see a single law enforcement agency in the nation doing its job.
That's right.
Lemme know when it's an anal probe administered by the peeps.
Maybe the Feds should put a lien on the Audrain Building in Newport, owned the Audrain Building, "purchased in 2013 for $5.5 million by Nicholas Schorsch, the chairman and CEO of American Realty Capital. After renovations, "the second floor of the Audrain Building will serve as summer headquarters for American Realty Capital while the ground floor will be an antique car museum." Until now, the money just kept roling on for Schorsch. Now he will have to spend his millions on thieving lawyers, not posh real estate.
that;s hilarious; another fucking cheap crook.
6 million for a CEO is pocket change.
I guess somebody at the REIT forgot to make "campaign contributions" to the right people
There's never just one cockroach. More crooked real estate scammers; how amazing.
Listen Tyler.
FBI is American joke. No more articles about these loosers please. Unless it's FBI vs American Militia Patriots, Patriots win kind of story.
Or FBI Gulfstream Jet crashes on way to Hollywood Movie Set, all perish, kind of story.
What kind of American elitists government workers fly around in Gulfstreams? No wonder your country is failing.
This kind of crap is another reason to remember the first goal in achieving financial security is to take steps that insure capital preservation. One thing has become crystal clear over the last few decades and that is the economic landscape is constantly changing this means we really are no safer today than in the past. One day you can be a hero and the next day a goat.
One of my largest reasons for concern is I feel that many of the numbers being presented to us do not make rational sense, the "numbers don't work." The article below delves into how all of us will be vulnerable if the current financial system breaks down and has to be rebooted or restarted under new or drastically different set of rules.
http://brucewilds.blogspot.com/2014/11/capital-preservation-is-job-one.html
Advancingtime
It's "ensure," not "insure."
That's what I love about you. It's your attention to detail.
Idiot
The "authorities" have no clue when it comes to white collar crime as the police, for the most part, are idiots who couldn't take a police report of white collar crime if it killed them. FBI? Not here to help the individual. Just try and file a forgery claim against a bank!
Let's see...the public retirement plan that the state/city/fed workers belong to have at least 15% of their retirement in "financials". So does it make sense for those stooges to actually act against the banks when the banks feed them? Same with courts...the rely on bank income from foreclosures!
REIT, Real Equity Incineration Trust. What, 50% vacant strip malls, 70% vacant factory outlet centers, mismanaged apartment buildings or Space Available Office Tower?
Since when did the SEC and FBI merge?
Not an honest cop at the scene..and not a shmuck in jail.acting like they are gonna catch Lex Luthor or sometin.....the rest are chasing honest folx withdrawing cash from the bank hiding it in a shoe box at every traffic stop like Louisianna and Tennessee..in fact the only time I have seen them do a real probe was of the alien kind..on X files with Mulder and Scully..Justice really is Just Us..
Fact is it was just me and Scully doing the investigating. The Feds tried to keep us from finding the truth. I Just wish an alien ship would beam Obama and Holder up and do to them what they are doing to this country. Do You Believe?
Did the FBI retain Bart Chilton to head the investigation?
+100
Thanks for making me lol!
One last time...Fuck you Bart!
1st (micro) step in the "cover tracks" blame game. string of sacrificial lambs and then time to "reboot".
FBI.Forever Bother Italians.
I've been saying for years that I think these REITS have Ponzi elements. I guess it takes a while to be proven right.
"intentionally made" accounting mistakes.
I guess that is one way to soft sell, what I like to call fraud.
Going to be like SAC, only Goy will be charged.
An American, not US subject.
And exactly how many Wall Street financial fraudsters has Eric "The Do Nothing" Holder indicted?
1) zero;
2) zilch;
3) nada;
4) nicht; or,
5) all of the above.
Federal Bullshit Inc.
Yes we all heaved a sigh of relief on hearing the FB of EYE are on the case and they're confident of a conviction before barry's term ends.
The NSA unfortunately deleted by mistake incriminating emails and so the Congressmen in their pocket can relax as the buck stops at the 2 patsies already shown the door although both received generous severance packages on signing a SHUT THE FUCK UP non disclosure.
Fucking Bumbling Idiots
With the FBI and the SEC on the job, I'm sure they'll get to the bottom - Dante's eighth circle of hell - of this in no time.
I'm suprised the FBI has the resources to investigate another accounting fraud as they are so busy with their investigation and indictments against Jon Corzine and his buddies at MF Global. HA HA HA
i heard judge napolitano on fox say that the fbi could legally break any law they wanted as long as it didn't hurt any innocent bystanders.
so when the irs breaks into your business to get serial numbers off equipment so they can up a lean on it that is ILLEGAL, just so know, cuz they ain't FBI. just so know. the law. cuz ignorance of the law isn't a viable excuse. in court. just so you know.
so if the fbi can break any law like napolitano said, if it doesn't hurt innocent bystanders, what can the cia do???
now that is the 64,000 dollar question.
and if the fbi is full of ruby ridge cowboys, why don't they wear those big stetson hats???
i mean obama redesigned the marine corp hats so they all look gay, why didn't obama make it mandatory that the fbi wear stetson cowboy hats, better yet, why didn't obama make them wear pink cowgirl hats???
maybe its cuz obama fears the fbi more than the marine corp, marine corpse, i mean marine cor-ps, co-r-p-s
It's just a show to say they are doing something. Underneath, it's the shareholders take the loss while the owners/executives flex their jail free cards.
I am confused, I don't understand what Accounting rules still apply. Accounting rules were done away with in 08
Guess who didn't pay their "political campaign contributions"?
I thought Sarbanes Oxley fixed all this...
AR must have pissed off the squid. That or maybe the squid wants something they own.