Case Spotlight: American Realty Capital Properties, Inc. (ARCP)

COMPANYAmerican Realty Capital Properties, Inc. (ARCP)
SETTLEMENT AMOUNT$1,025,000,000 (tentative settlement)
INDUSTRYFinancial - Diversified
CLAIMSMisleading financials
RELEVANT PERIODFebruary 28, 2013 - October 29, 2014
CLAIM DEADLINEJanuary 23, 2020

The proposed settlement resolves claims that ARCP, now called VEREIT, misrepresented its financial performance for fiscal year 2013 and the first two quarters of 2014.

The settlement is noteworthy for its size.  According to Cornerstone Research,[1] since 1996, less than 2% of securities class action settlements have exceeded $1 billion.  If approved, ARCP will be the tenth largest since the PSLRA was passed.[2]

It’s also noteworthy for the amounts contributed by defendants other than the issuer.  ARCP is paying $738.5M.  The rest – $286.5M – is coming from AR Capital and others ($225M); ARCP’s ex-CFO ($12.5M); and ARCP’s auditors ($49M).

Finally, the settlement is noteworthy because post-class distribution, it will give a basis for comparing recovery rates to class members and opt-outs.  According to InvestmentNews,[3] last year the REIT paid $175 million to 9 institutional investors – including Vanguard – that had exited the class to pursue their own claims.

Something similar happened in last year’s mega-settlement with Petrobras ($3 billion, #5 on the top 10 list).  As here, the company there settled opt-out suits before resolving the class suit.  In both matters, the reduced class size likely enhanced the parties’ ability to reach resolution of the class action and given the outsized recovery, may well result in higher than average payouts to class members.

In any event, assuming the opt-out returns are significantly higher than class member recoveries, the ARCP settlement will further fuel the trend we’re seeing of large investors opting-out of high profile fraud matters.

CLASS DEFINITION

All persons and entities that purchased or otherwise acquired the common stock, preferred stock, or debt securities of American Realty Capital Properties, Inc. or ARC Properties Operating Partnership, LP during the period between February 28, 2013 and October 29, 2014.

IMPORTANT DATES AND DEADLINES

  • Final Approval Hearing; January 21, 2020
  • Deadline for Objecting to Settlement: December 31, 2019
  • Claim Filing Deadline: January 23, 2020
  • Exclusion Deadline: If you did not exclude yourself after the Notice of Pendency of Class Action, you are a Class Member and cannot exclude yourself at this point.

[1] Cornerstone Research, Securities Class Action Settlements, 2018 Review & Analysis.

[2] Securities Class Action Clearinghouse, Top Ten by Largest Settlement.

[3] Bruce Kelly, Settlements at old Schorsch REIT could cost shareholders $730 million (10/13/2018).

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