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VEREIT and American Realty Capital to Pay Nearly $1 Billion to Settle Lawsuits

CEO Khai Intela
September 10, 2019 | James Sprow | Blue Vault In a major development, VEREIT, Inc. (NYSE: VER) has announced its plans to settle certain outstanding litigation, including class action and opt-out actions, with a total...

VEREIT and American Realty Capital to Pay Nearly $1 Billion to Settle Lawsuits

September 10, 2019 | James Sprow | Blue Vault

In a major development, VEREIT, Inc. (NYSE: VER) has announced its plans to settle certain outstanding litigation, including class action and opt-out actions, with a total cost of approximately $765.5 million. This settlement signifies a significant step for the company as it aims to resolve legal disputes and move ahead with its business operations. Let's delve into the details and see what this means for VEREIT and American Realty Capital.

About the Company

VEREIT is a prominent full-service real estate operating company that owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S. With total real estate investments of $15.0 billion, comprising approximately 4,000 properties and 90.6 million square feet, VEREIT has established itself as a key player in the real estate industry.

The company was formerly known as American Realty Capital Properties (ARCP) and was managed by American Realty Capital, a closely held real estate partnership led by Nicholas Schorsch. Notably, the nontraded REIT programs sponsored by ARC raised over $16 billion through public offerings of common stock. This settlement aims to bring an end to legal issues arising from the merger of two nontraded REIT programs with ARCP.

The Class Action Settlement

Under the settlement agreement, certain defendants, including the Company's former external manager American Realty Capital (ARC) and its principals, have agreed to pay a total of $1.025 billion. This amount includes $225.0 million from ARC and its principals, $12.5 million from the former chief financial officer Brian Block, $49.0 million from the former auditor Grant Thornton, and the remaining $738.5 million contributed by VEREIT.

The contributions from ARC and Brian Block can be fulfilled either through cash, limited partner units of the Operating Partnership (OP Units) held by ARC and Block, or amounts due related to the dividends on such OP Units that were previously withheld from distribution. It is worth mentioning that ARC had previously surrendered a significant portion of its OP Units and dividends amounting to approximately $32.0 million. These contributions are inclusive of the value of the surrendered OP Units and dividends.

The Derivative Action Settlement

Alongside the Class Action settlement, VEREIT has also entered into a memorandum of understanding for the settlement of the derivative action lawsuit currently pending in the Southern District of New York. This settlement is a crucial step for the company as it aims to put an end to legal disputes and pave the way for a better future.

The Opt-Out Action Settlements and Remaining Litigations

Furthermore, VEREIT has reached settlement agreements and releases to resolve the Opt-Out Actions for a total of $27.0 million. These settlements are not subject to court approval. While three additional derivative actions remain pending in courts other than the Southern District of New York, the company expects to seek dismissal of these actions based on the settlement of the Derivative Action.

Management Commentary

Expressing his satisfaction, Glenn J. Rufrano, Chief Executive Officer of VEREIT, stated, "VEREIT is pleased to enter into agreements that we expect will bring these litigations to a conclusion. The Company believes the settlements are in the Company's best interest and that of its shareholders, as they eliminate the risk of adverse judgments at trial, put an end to timing uncertainties, and remove the burdens and costs of these litigations."

Additional Information

VEREIT has been cooperating with the SEC staff's investigation related to the matters at issue in the Class Action. The company plans to seek recovery of approximately $34.0 million paid by the Former Manager and the Former CFO to the SEC in connection with the previously announced settlement between them and the SEC. Any disbursed funds will be maintained by the Company and will not be included in the settlements described above. The timing and substance of the resolution of these discussions with the SEC are currently unknown.

It is important to note that the court's approval of the Class Action and Derivative settlements, the resolution of remaining derivative lawsuits, and the SEC matter are subject to various factors and uncertainties. VEREIT will be required to fund its contribution to the Class Action settlement, along with the cash value of any OP Units and dividends surrendered by the Former Manager and the Former CFO, ten days after the court grants preliminary approval of both settlements.

Sources: VEREIT, SEC, Blue Vault

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