Nicholas S. Schorsch and his real estate investment firm, AR Capital, has agreed to pay more than $60 million to settle charges leveled by the U.S. Securities and Exchange Commission that he, his firm and a former CFO wrongfully obtained millions of dollars in connection with two separate mergers between real estate investment trusts (REITs) that were sponsored and externally managed by AR Capital.

According to the SEC's complaint, between late 2012 and early 2014, AR Capital arranged for American Realty Capital Properties Inc. (ARCP), a publicly-traded REIT, to merge with two publicly-held, non-traded REITs. The SEC alleges that AR Capital, Schorsch, and Brian Block, acting in breach of the relevant proxy disclosures, inflated an incentive fee in both mergers.

As alleged, this improper calculation allowed them to obtain approximately 2.92 million additional ARCP operating partnership units as part of their incentive-based compensation. In addition, the complaint alleges that the defendants wrongfully obtained at least $7.27 million in unsupported charges from asset purchase and sale agreements entered into in connection with the mergers.

In a prepared statement, Marc P. Berger, director of the SEC's New York Regional Office, said, “"REIT managers and their professionals have an obligation to tell the truth when making disclosures to shareholders about their compensation. As we allege in our complaint, AR Capital and its partners Schorsch and Block failed to do so and benefitted themselves greatly at the expense of shareholders.”

The SEC's complaint, filed in federal district court in Manhattan, charges AR Capital and Block with violating antifraud provisions and falsifying books and records of ARCP. The complaint also charges Schorsch with negligently violating antifraud provisions, as well as books and records violations.

The SEC said without admitting or denying the allegations in the complaint, AR Capital, Schorsch, and Block have consented to entry of a final judgment that imposes permanent injunctions from violations of the charged provisions; orders combined disgorgement and prejudgment interest on a joint-and-several basis of over $39 million, which includes cash and the return of the wrongfully obtained ARCP operating partnership units; and imposes civil penalties of $14 million against AR Capital, $7 million against Schorsch, and $750,000 against Block.

The settlements are subject to court approval, the SEC said.