Management Accounting

Did Property Mogul ‘Scapegoat’ Chief Accounting Officer?

A former finance exec accuses Nicholas Schorsch and his REIT of falsely blaming her for accounting errors.
Matthew HellerDecember 19, 2014
Did Property Mogul ‘Scapegoat’ Chief Accounting Officer?

In the latest fallout from an accounting scandal at American Realty Capital Properties, the real estate investment trust’s former chief accounting officer has accused her former boss, property mogul Nicholas Schorsch, of falsely portraying her as responsible for improper financial reporting.

Nicholas Schorsch

Nicholas Schorsch

Lisa Pavelka McAlister alleged in a defamation lawsuit filed Thursday that she was fired in October after she refused to go along with a cover-up allegedly orchestrated by Schorsch. The suit names Schorsch, David Kay, who succeeded him as CEO in September, and American Realty as defendants.

Schorsch and other executives “caused the company to terminate Ms. McAlister’s employment in retaliation for blowing the whistle on ARCP and to use her publicly as a scapegoat for defendants’ fraudulent conduct,” the suit alleges.

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American Realty announced on Oct. 29 that CFO Brian Block and McAlister had resigned after an internal investigation found the company had overstated a measure of income known as “adjusted funds from operations” in the first quarter.

The error “was identified but intentionally not corrected, and other AFFO and financial statement errors were intentionally made,” American Realty said in a news release.

Kay was quoted as saying the company had taken “personnel and other actions necessary to ensure this does not happen again.”

As the Wall Street Journal reports, American Realty stock fell in the wake of the disclosure, erasing almost $4 billion from the REIT’s market value and shaking Schorsch’s $30 billion real-estate empire.

In her lawsuit, McAlister says she was part of a July 28 conference call in which Schorsch told Block to cover up the “unlawfully misleading financial reports.” She “repeatedly expressed her concerns” about Schorsch’s instruction, “but her objections were ignored,” the suit alleges.

According to the complaint, the Oct. 29 news release was defamatory because it stated that McAlister and Block had resigned, “thereby clearly implicating them for ARCP’s admittedly ‘intentional’ and fraudulent financial statement errors.”

American Realty hired McAlister, a former executive at PwC and Bank of America Merrill Lynch, in November 2013 as a senior vice president and CAO.

Photo: RyanELight, CC BY-SA 3.0