Pensions, TIAA-CREF Accuse REIT Firm of Accounting Fraud

NYC’s retirement system has joined a lawsuit against American Realty Capital Partners, claiming it “artificially inflated prices” of its securities.

American Realty Capital Properties (ACRP), a real estate investment trust provider, is facing a growing group of investors claiming it fraudulently inflated performance figures.

The $159 billion New York City retirement system and TIAA-CREF have filed complaints against the firm, requesting to join in an ongoing lawsuit led by two Ohio public pension funds.

“The company concealed the risk that its utter lack of meaningful controls would enable corrupt members of senior management to mislead investors by doctoring ACRP’s financial results.”

In October 2014, nine days after the Ohio pensions first filed suit, the real estate firm admitted it had made intentional accounting errors, and purposely failed to correct other mistaken figures. Its stock plummeted by 30% within hours of the revelation, and closed trading for the day having lost roughly $2 billion in market capitalization.

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TIAA-CREF claimed it alone lost tens of millions of dollars due to the alleged accounting fraud, while the Ohio pensions peg the damage for all American Realty Capital investors in the billions.

“In light of general investor concerns about the quality of the company’s accounting functions, internal controls, and corporate governance (as highlighted by several embarrassing reporting mishaps), ACRP desperately sought to reassure investors that it had righted the ship and that its internal control systems were above reproach,” TIAA-CREF’s complaint stated.

“In doing so,” the filing continued, “the company concealed the risk that its utter lack of meaningful controls would enable corrupt members of senior management to mislead investors by doctoring ACRP’s financial results.”

The group investors suing ACRP has accused the firm and its former executives of a number of securities law violations. These shareholders are seeking compensation for their diminished investments and punitive damages, as well as reimbursement for legal fees.

ACRP had not filed a response to the charges at time of publication.

The Prudential Insurance Company of America has taken on $600 million of liabilities from the pension plan of US vehicle components maker Timken.

The deal covers 5,000 pensioners and is the first major de-risking deal to be made public by a US pension in 2015.

Prudential will begin paying pensions from April, a statement from Timken said.

“When finalized, this annuity purchase will reduce The Timken Company’s gross pension liability by about $600 million,” the company said.

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The pension risk transfer follows payments of nearly $2 billion from Timken to its various global pensions over the past 10 years, Timken’s statement added, which had helped ensure the US plans were fully funded.

Prudential and its subsidiaries backed a number of de-risking deals in 2015, most notably the record-breaking £16 billion longevity swap transaction with the BT Pension Scheme in July.