Risk & Compliance

Former Brixmor Property CFO and CEO Charged with Accounting Fraud

The SEC charged the company and four former executives with manipulating non-GAAP measures.
Lauren MuskettAugust 2, 2019

Brixmor Property Group has agreed pay a $7 million penalty to settle Securities and Exchange Commission charges against the company and four former senior executives connected to a scheme to operating metrics used by analysts and investors to evaluate financial performance, the SEC said.

In a complaint filed in the United States District Court for the Southern District of New York, authorities alleged that from the third quarter of 2013 to the third quarter of 2015, Brixmor CEO Michael Carroll, CFO Michael Pappagallo, chief accounting officer Steven Splain, and senior vice president of accounting Michael Mortimer manipulated same property net operating income to meet publicly-issued growth targets.

In February 2016, Brixmor disclosed income statements had been manipulated and said Carroll, Pappagallo, Splain, and Mortimer were resigning based on an audit committee investigation of a whistleblower complaint.

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In addition to the penalty, Brixmor agreed to retain an independent consultant to review and assess controls relating its financial reporting.

Brixmor, a publicly traded real-estate investment trust, owns and operates a portfolio of open-air shopping centers.

The company settled without admitting or denying the allegations.

The U.S. Attorney’s Office for the Southern District of New York also filed criminal charges against Carroll, Pappagallo, Splain, and Mortimer over the violations.

Splain and Mortimer have pled guilty to charges, but an attorney for Michael Pappagallo told MarketWatch Pappagallo was going to contest the civil and criminal charges.

Michael Carroll is also contesting the charges. “Mike Carroll has always acted with integrity and honesty, including during his time at Brixmor. He looks forward to vigorously defending himself against these charges, which we believe to be unfounded,” his attorney said in a statement.

Carroll received a bonus of $800,000, Pappagallo received $750,000, and Splain received $210,000 in 2014 after exactly meeting per-share guidance using manipulated statements.

“A company that chooses to publicly present non-GAAP financial measures must do so truthfully,” the director of the SEC’s New York Regional Office, Marc Berger, said in a statement.