In re American Realty Cap. Props., Inc. Litig.
Case Summary
Represents the Highest Percentage Pre-Trial Recovery in a Major Securities Class Action Settlement Ever
On January 21, 2020, after five years of contentious litigation, and on the eve of trial, Robbins Geller obtained final approval of a record-breaking settlement in the American Realty Capital Properties, Inc. securities class action. The $1.025 billion recovery is extraordinary in several respects. The settlement represents the highest percentage pre-trial recovery in a major securities class action settlement ever. The settlement also includes more than $200 million paid by individual wrongdoers, including American Realty Capital Properties, Inc.’s (“ARCP” now known as VEREIT) former Chief Executive Officer, Nicholas Schorsch (and the partnership he controls) and former Chief Financial Officer Brian Block. The contributions to the settlement are the largest payments ever made by individual wrongdoers in a securities class action settlement, dwarfing the next largest settlement contributions by individuals of $30 million. The lead plaintiff was Teachers Insurance and Annuity Association of America (“TIAA”).
The case was first filed on October 30, 2014. Plaintiffs alleged that beginning with ARCP’s 2012 financial statements, ARCP’s CEO, CFO, and other senior accounting and finance personnel began manipulating ARCP’s operating performance numbers – Adjusted Funds From Operations (“AFFO”) – that ARCP had provided to investors in an effort to meet the market’s expectations and the AFFO guidance the company had provided to the market. These misstatements allegedly enabled ARCP to complete an acquisition spree that transformed the company from one with a market capitalization of approximately $260 million to a $21 billion behemoth in a little more than two years. Plaintiffs also alleged that ARCP’s former CEO and CFO accomplished this incredible growth through a series of related-party transactions in which ARCP acquired other real estate investment trusts, or REITs, managed by a partnership that ARCP founder and CEO Schorsch controlled and in which CFO Block was a partner. These transactions were allegedly structured such that related companies owned and controlled by Schorsch and Block’s partnership received work for which fees and commissions were paid to them by ARCP. All told, plaintiffs alleged that Schorsch and Block enriched themselves through hundreds of millions of dollars in so-called “fees and commissions” paid to their partnership.
Throughout the course of the litigation, defendants continuously leveled attacks on plaintiffs’ allegations and asked the court to dismiss the case at every opportunity. Robbins Geller’s team fought back against defendants’ attacks and won each battle – including defeating defendants’ 12 motions for summary judgment. Robbins Geller’s team reviewed and analyzed over 12 million pages of documents; obtained class certification of nine different claims involving seven separate securities – common stock, preferred stock, and multiple bonds – after a full-day evidentiary hearing and contentious objections by defendants; and took or defended over 70 depositions, including 17 experts hired by defendants to testify on a variety of subjects, including complicated REIT accounting and auditing issues and questions concerning whether or not the market was fully informed of ARCP’s AFFO accounting practices.
The $1.025 billion recovery was reached in the midst of preparing the case for trial in January 2020. Overall, the Firm devoted over 100,000 hours to the case and had made preparations to move the 20-person trial team to New York City for the 6 to 8 week trial. “This historic settlement is a direct reflection of the devotion of the team of lawyers and forensic accountants to this case, and the tenacity, inventiveness, and skill with which each individual approached the obstacles to victory defendants attempted to construct,” said Robbins Geller partner Debra J. Wyman. “While there were several large institutional investors that chose to pursue individual actions and opt out of the class, the percentage of damages we were able to recover here is more than twice what the opt out funds negotiated in settling their individual actions. We obtained this unprecedented result precisely because of our ingenuity, our creativity, our ability and willingness to try cases, and, more than anything, our commitment to the class.”
In approving the settlement, the court noted that the case presented “difficult” issues of proof concerning falsity and knowledge, and that the parties presented “a tough adversarial fight” at every juncture. Commenting on the work done by Robbins Geller, the court stated: “My own observation is that plaintiffs’ representation is adequate and that the role of lead counsel was fulfilled in an extremely fine fashion by [Robbins Geller]. At every juncture, the representations made to me were reliable, the arguments were cogent, and the representation of their client was zealous.” Because of the work he did on this case, Robert M. Rothman has been recognized by the New York Law Journal as a New York Trailblazer. Debra and Jessica T. Shinnefield have also been recognized as Litigators of the Week by The AmLaw Litigation Daily for their work on the case.
Robbins Geller attorneys responsible for this result include litigation team members Darren J. Robbins, Daniel S. Drosman, Robert M. Rothman, Jonah H. Goldstein, Debra J. Wyman, Jessica T. Shinnefield, Christopher D. Stewart, Laura M. Andracchio, Ashley M. Price, and Jennifer N. Caringal; trial counsel Michael J. Dowd and Jason A. Forge; and forensic accountants Andrew Rudolph and Heather Jennette.
In re American Realty Cap. Props., Inc. Litig., No. 1:15-mc-00040-AKH (S.D.N.Y.).