Schorsch real estate empire shaken

Shares of American Realty Capital Properties Inc. fell again today, tumbling below $10 for the first time since the property investment company went public in 2012. The firm, founded by Nicholas Schorsch, based in New York and still run partly from his former offices in the Jenkintown area, struggled to explain the departure of two top financial executives amid an accounting scandal that will force it to restate first and second quarter earnings and delay third quarter earnings. The company says here the restated earnings won't much affect its payments to shareholders.

Brian Block, American Realty's chief financial officer, and Lisa McAlister, chief accounting officer, left after the board's audit committee found errors in their first-quarter numbers that they had purposely not corrected for the second quarter, chief executive David S. Kay told investors in this conference call (transcript via Financial Times' Seeking Alpha, free, but registration required.) The error and the lies to cover it up followed a change in the company's complex accounting practices. As a real estate investment trust, American Realty is managed to minimize taxes and maximize cash flow to investors.

"The Securities and Exchange Commission is reviewing the company's accounting," Bloomberg said here, citing an unnamed "person with knowledge of the matter." The S&P credit rating agency threatened to cut the company's credit rating to below investment grade ratings, which could boost its future borrowing costs.

An hour before market closing, American Realty (ARCP) traded at $9.46 a share, down from $10 this morning and $12.35 last Friday, the day McKay said he learned his top finanical lieutenants had fudged the books.

Kay recounted how the company has agreed to sell its brokerage and apartment units, paid down debt and otherwise improved over the past year "in an attempt to increase transparency and simplify the business." He called the accounting troubles "a pretty crushing blow," but "not the parade of horribles that the market may view this as today." He said auditors, including managers at Grant Thornton & Co., were reviewing the false reports but won't have to conduct another full audit.

He said the troubles won't force American Realty to cut its dividend, but it may sell "high value" properties to raise cash to purchase more shares and prop up its own stock price, "which we believe is tremendously undervalued."

Another company Schorsch set up, RCS Capital, saw shares fall below $17 in trading today, down from a high of $39.50 on April 1.