September 10, 2019 | James Sprow | Blue Vault
Investment firm VEREIT, Inc. (NYSE: VER) recently announced that it has reached agreements to settle various lawsuits, undertaking a monetary commitment of approximately $765.5 million. The settlement includes a contribution of $738.5 million towards the Class Action settlement and $27.0 million towards the Opt Out Action settlements. Let's delve deeper into this significant development.
About VEREIT, Inc.
VEREIT, Inc. is a prominent real estate operating company with an impressive portfolio of single-tenant commercial properties in the United States. With total real estate investments amounting to $15.0 billion, encompassing around 4,000 properties and 90.6 million square feet, VEREIT is a key player in the industry.
The company was previously known as American Realty Capital Properties (ARCP) and was managed by American Realty Capital (ARC), a closely held real estate partnership led by Nicholas Schorsch. Over the years, nontraded REIT programs sponsored by ARC raised over $16 billion through public offerings of common stock.
The Class Action Settlement
The Class Action settlement aims to resolve the claims made by class plaintiffs regarding the financial statement disclosures made by VEREIT in October 2014 and March 2015. The settlement involves a total payment of $1.025 billion, contributed by various parties involved. Contributions from ARC and its principals amount to $225.0 million, with $12.5 million coming from the former chief financial officer, Brian Block, and $49.0 million from the former auditor, Grant Thornton. The remaining $738.5 million will be provided by VEREIT.
It is worth noting that the contributions from ARC and Brian Block can be fulfilled through a combination of cash, limited partner units of the Operating Partnership (OP Units) held by ARC and Block, and outstanding dividend amounts related to these OP Units.
The Derivative Action Settlement
In addition to the Class Action settlement, VEREIT has also entered into a Memorandum of Understanding (MOU) to settle the derivative action lawsuit currently pending in the Southern District of New York. This settlement, known as the Derivative MOU, is an essential part of resolving the various litigations surrounding the company.
The Opt-Out Action Settlements and Remaining Litigations
As part of the overall settlement, VEREIT has made agreements to settle the Opt Out Actions for a total of $27.0 million. These settlements do not require court approval. However, three additional derivative actions are still pending in courts outside of the Southern District of New York. The company anticipates seeking the dismissal of these actions based on the settlement agreement reached in the Derivative Action.
Management Commentary
Glenn J. Rufrano, Chief Executive Officer of VEREIT, expressed satisfaction with the settlement agreements, believing they will bring the litigations to a close. Rufrano highlighted that the settlements eliminate the risk of unfavorable judgments, provide certainty in terms of timing, and alleviate the burdens and costs associated with the litigations.
Additional Information
VEREIT has been cooperating with the Securities and Exchange Commission (SEC) staff's investigation into the matters related to the Class Action. The company is also engaged in discussions with the SEC regarding a potential resolution of charges. Furthermore, VEREIT plans to seek recovery of approximately $34.0 million paid by ARC and the former CFO to the SEC as part of their settlement. However, there is no assurance regarding the disbursement of these funds or the ultimate resolution of the discussions with the SEC.
The court's approval of the Class Action and Derivative settlements, as well as their potential impact on future derivative lawsuits or the SEC matter, remains uncertain. VEREIT is required to fund its contribution to the Class Action settlement, including the value of any OP Units and dividends surrendered by ARC and the former CFO, ten days after the court grants preliminary approval of both settlements.
Sources: VEREIT, SEC, Blue Vault
