The US Securities and Exchange Commission has charged AR Capital, its founder Nicholas Schorsch and its former CFO Brian Block with wrongfully obtaining millions of dollars in connection with two separate mergers between real estate investment trusts (REITs) that were sponsored and externally managed by AR Capital.

The defendants agreed to settle the matter by, among other things, cumulatively agreeing to paying more than $60 million. These payments covered their 'disgorgement' of ill-earned profits, prejudgment interest and civil penalties. According to the SEC's complaint, filed in federal district court in Manhattan, between late 2012 and early 2014, AR Capital arranged for American Realty Capital Properties (ARCP), a publicly-traded REIT, to merge with two publicly-held, non-traded REITs.

The SEC alleges that AR Capital, Schorsch, and Block, acting in breach of the relevant proxy disclosures, inflated an incentive fee in both mergers, allowing themselves to obtain 2.92 million additional ARCP operating partnership units as part of their incentive-based compensation. In addition, the complaint alleges that the defendants wrongfully obtained at least $7.27 million in unsupported charges from asset purchase and sale agreements made in connection with the mergers.

"REIT managers and their professionals have an obligation to tell the truth when making disclosures to shareholders about their compensation," said the SEC. The SEC's complaint charges AR Capital and Block with breaking the anti-fraud provisions of s17(a) Securities Act 1933, s10(b) Exchange Act and Rule 10b-5(b) thereunder, and falsifying the books and records of ARCP. It charges Schorsch with negligently breaking the anti-fraud provisions of ss17(a)(2) and (3) Securities Act, along with offences to do with books and records. Nobody has admitted or denied anything.