PART II: “Billionaire” Buying Up Newport — Flying High on Wall St. to Allegations of Fraud
GoLocalProv News Team and Josh Fenton
PART II: “Billionaire” Buying Up Newport — Flying High on Wall St. to Allegations of Fraud
Nicholas Schorsch was once deemed a billionaire by Forbes and today, he is buying up some of Newport’s best-known businesses.
GoLocal has spoken to Schorsch, his advisors, politicians, journalists and dozens of others to get an understanding of his business track record.
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In PART II, we look at Schorsch’s Wall Street business record, his move to Newport, and how he has ingratiated himself in Rhode Island politics.
Nicholas Schorsch has had three distinct business careers.
Early in his career, Schorsch helped run a scrap metal business in Philadelphia in the 1990s, a business that was repeatedly cited for safety and environmental violations.
Schorsch left that business and, over the next two decades, reinvented himself as the king of retail REITS - real estate investment trusts. He became very rich and ultimately very controversial.
Today, he is gobbling up businesses in Newport, Rhode Island. Along with his family, Schorsch is trying to create a hospitality empire.
Schorsch has worked to tie influential Rhode Islanders to his business interests. GoLocal unveiled how a local politician has been appointed to one of Schorsch's New York real estate company's boards. State Senator Lou DiPalma, an engineer at Raytheon in Portsmouth, was tapped by Schorsch and has been paid about $200,000 to serve on the board of one company.
In another business scheme, in 2021, Schorsch launched a $200 million SPAC or "blank check company," and he asked a Rhode Island nun, former Salve Regina University president Sister M. Therese Antone, to serve on the board of a hospitality roll-up company.
Antone agreed to serve on the board, but that company failed. (More on Antone's involvement — below).
Big PR and Living Large
In the early 2010s, the business press hyped up Schorsch with glowing profiles.
“Nicholas Schorsch strides into the Grand Ballroom of New York's Waldorf Astoria, clad in a dark suit, a red lanyard dangling from his neck. Despite the bags under his eyes--he's been up most of the night--he has the swagger of an industry titan. Schorsch is chairman or chief executive of over a dozen different companies, including a $19 billion enterprise-value publicly traded REIT, American Realty Capital Properties (ARCP). It's REITWeek, the most important annual gathering in the $1 trillion commercial real estate investment trust industry. According to his p.r. person Schorsch isn't scheduled to present today, but he can't help but grab center stage, delivering the first half of ARCP's talk to investors and analysts,” wrote Forbes in June of 2014.
“Road shows are Nick Schorsch's forte. Since 2008 he has raised more than $17 billion for his companies: 17 nontraded REITs, a business development corporation and an energy fund. In the last 15 months alone companies he controls have engaged in 12 transactions amounting to more than $35 billion worth of mergers and acquisitions. To legions of financial advisors and their clients, Schorsch is the messiah of high yield. Virtually all of his specially structured real estate trusts aren't listed on any public exchange or followed by analysts, yet they are adored by mom-and-pop investors because they generate income at an average of 7%,” added Forbes.
There was just one problem: some of his company's financial claims were not true. But while the going was good, Schorsch was pocketing hundreds of millions of dollars and buying up luxury assets, including one of Newport’s great mansions.
In 2012, Schorsch came to Newport and dropped down $16 million to purchase the waterfront mansion Hopedene. At the time, the purchase was the second-highest sale in Newport’s history. The home features 21,000 square feet of living space, 15 bedrooms, and 14 baths. Schorsch told GoLocal that this is now his full-time residence. In an interview with GoLocal, he poked at others in the mansion class, differentiating himself from the likes of others.
The fantastic earnings of Schorsch's company were false and covered up.
Appearance is Not Always Reality
In December 2014, Massachusetts and Federal Regulators began investigations into Schorsch and his companies.
“The investigation comes days after another part of Mr. Schorsch’s REIT empire, the large traded REIT American Realty Capital Properties Inc., revealed a $23 million accounting error over the first six months of this year that was intentionally uncorrected. The Securities and Exchange Commission and FBI have begun investigations of ARCP,” reported Investment News.
Schorsch, throughout his business career, has been a master in creating a web of companies.
The false earning reports lead to criminal investigations, prosecutions, and a multitude of lawsuits seeking more than $1 billion in total.
In one lawsuit filed by Vanguard in 2015, the mutual fund company alleged that Schorsch and his managers ripped off investors.
“Schorsch bought thousands of commercial properties, from blocks of stores whose mortgages had been controlled by GE Capital to Red Lobster restaurants and other chain eateries. Schorsch and his supporters said Schorsch had developed a new way to invest in real estate, sharing future profits rather than up-front fees.
But ‘the true primary purpose in Schorsch’s buying spree’ was ‘to rob from shareholders and give to himself and his friends,’ according to Vanguard’s suit.
According to the suit, Schorsch ‘transferred hundreds of millions of dollars to entities controlled by him and by other senior insiders, in 2013 and 2014,” reported the Philadelphia Inquirer.
Ultimately, Vanguard was paid $90 million to resolve the lawsuit in 2018.
Then, there was a $900 million lawsuit by TIAA-CREF filed in 2015.
“In a lawsuit filed last week in federal court in Manhattan, investors led by the TIAA-CREF college retirement fund alleged a list of frauds by Schorsch and other past managers, directors, auditors and bankers. The complaint is illustrated by a drawing of a spider's web bearing the names of 36 Schorsch-related firms and investment funds, with Schorsch's name in the spider's place. American Realty 'lies at the center of a complex web of interrelated companies,' the suit says. ‘The Schorsch empire was structured to help conceal defendants' fraudulent scheme,’” reported the Philadelphia Inquirer.
That lawsuit was settled, too.
According to Schorsch’s lawyer, Michael Anderson who told GoLocal in an email, “Nick was never found liable for any of the matters raised in the litigation, and the public company settled the matter with the plaintiffs for approximately 33 cents on the dollar.”
Schorsch said in a phone interview with GoLocal that he was not responsible.
“One of our executives was involved with an accounting irregularity. It is not uncommon for companies. And in this case, it was more complicated than just that, and it was not something that I did," said Schorsch.
The Securities and Exchange Commission settled with AR Capital in 2019, its founder Schorsch, and former CFO Brian Block for more than $60 million to resolve charges ranging from defrauding investors to falsifying records.
"REIT managers and their professionals have an obligation to tell the truth when making disclosures to shareholders about their compensation," said Marc P. Berger, Director of the SEC's New York Regional Office. "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."
Ultimately, after three years, AR Capital, Schorsch, and Block agreed to 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.
A jury later convicted Block of fraud and related charges, and he was subsequently sentenced to eighteen months' incarceration and a $100,000 fine. Another top Schorsch staffer, chief accounting officer Lisa P. McAlister, pled guilty to securities fraud and related charges, and she later consented to a final judgment in the SEC's case as well as to an SEC order suspending her from appearing or practicing before the Commission as an accountant.
In 2021, Schorsch, along with his son Nicholas, Jr., and his son-in-law Brendan O’Donnell, launched a $200 million IPO for a hospitality SPAC. A SPAC is a special purpose acquisition company, which are also known as blank check companies.
Sister Antone, the Chancellor of Salve Regina University, was another member of the failed SPAC board. She previously served as the school's president from 1994 to 2009.
SPACs are a de facto shell company structure that has been strongly criticized by SEC Chair Gary Gensler and Wall Street titans like Warren Buffett for their lack of transparency. In January of 2024, the SEC finalized rules to restrict SPACs.
Gensler said in a statement, "Adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs, enhancing investor protection through three areas: disclosure, use of projections, as well as issuer obligations."
Gubernatorial candidate Helena Foulkes had also launched an unrelated SPAC.
But nearly as fast as Schorsch’s team announced they were launching the SPAC, they announced they were pulling the plug.
“Current market dynamics, enacted and pending changes in the regulatory environment, and unrealistic pricing expectations persuaded us that the prudent decision was to return to shareholders the capital held in trust, with interest, on our original timeline rather than seek a further extension,” Brendan O’Donnell, CEO of G&P Acquisition, Schorsch's failed SPAC, said in the statement in November of 2022. O'Donnell is Schorsch's son-in-law.
But while the hospitality SPAC failed and Sister Antone washed out from a major payday, Schorsh and his team sped up the buying spree in Newport.
Efforts to reach Sister Antone were unsuccessful.
COMING NEXT: PART III, Buying and Politics in Rhode Island