Schorsch Gobbles Up Rhode Island Small Businesses

Schorsch Gobbles Up Rhode Island Small Businesses

 

Nicholas Schorsch has been acquiring small businesses in Rhode Island at a rapid pace — restaurants, a brewery, real estate, and much more.

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His buying spree began in Newport and now has moved up to Providence. In just the past two months, he has purchased two of Providence's most iconic restaurants -- the Old Canteen and Olneyville NY System. The Old Canteen has been shuttered, and one of Schorsch's companies is turning the location into a wiener restaurant.

 

SEE LIST OF BUSINESSES SCHORSCH & HIS COMPANIES HAVE PURCHASED - BELOW

 

The Philadelphia native was once named a billionaire by Forbes. Then, when his real estate companies began to unravel and face lawsuits and federal regulatory action, he fell from the Forbes list.

He started his career in Philadelphia and then became a significant CEO in commercial real estate. A true titan of Wall Street, but with each step, there were controversies.

His business associates include former Pennsylvania Governor Ed Rendell and former Salve Regina President Sister M. Therese Antone.

Schorsch, who owns the "Audrain Auto Network," is an avid car collector and counts Jay Leno as a close friend.

GoLocal, over the past nine months, has conducted more than 75 interviews regarding Schorsch and his interests. 

After reviewing hundreds of news articles and legal documents, one thing is clear — his story is very complex.

 

Philadelphia - Safety Issues, Fines

In Philadelphia, Schorsch's company was cited repeatedly for health and environmental violations; workers at one of his facilities were found to be lead contamination.

Schorsch's company was fined by OSHA.

 

Safety and Environmental Violations, Threatened Workers

Early in Schorsch’s career, he was an owner and the operator of a number of interrelated companies — businesses that were cited for a string of environmental and safety violations.

Under Schorsch’s leadership, both the federal safety agency OSHA and an environmental regulatory agency repeatedly fined Schorsch’s company for violations from 1983 through 1990.

After one enforcement action by OSHA, Schorsch ridiculed the agency; he told the Philadephia Inquirer, “As far as we’re concerned, the allegations are completely false. They [OSHA] have to do something to justify their salaries. They have been out here for months. Obviously, they’re not finding what they are looking for, and they are getting irritated.”

However, months later, as the Inquirer reported, Schorsch signed a 23-page consent decree that “described an extensive effort to hinder and obstruct OSHA investigation from mid-May to mid-August. Further, the company admitted it had 'carried out a predetermined, systematic plan' to prevent OSHA inspectors from observing and photographing production processes and taking air samples. Schorsch and the company admitted that they gave 'the clear impression that anyone caught talking to OSHA inspectors would be disciplined or fired.'"

As part of the consent decree, Schorsch’s firm agreed to pay more than $11,000.  This was at a time when the federal government under President Ronald Reagan was criticized for being lax in its environmental and safety enforcement.

But, those violations were minor compared to a second enforcement action by OSHA.

Less than two months later, OSHA announced another enforcement action. According to a report in the Inquirer, “OSHA inspectors found layers of lead dust throughout the plant, resulting from poor ventilation in the work areas, the citation says. Dust samples were taken from the lunchroom, a water fountain, and a vending machine. Lead dust was discovered on the employee's personal clothing.”

The most disturbing thing was that ”of the 118 employees tested this month, OSHA contends 51 either had the maximum level of lead in their blood or exceeded the maximum.”

Schorsch’s company “removes the lead sheathing and cooper wire from used utility cable and refines the metals for resale.”

Then, in 1990, the Inquirer reported that Schorsch’s company was fined again.

“Thermal Reduction, Inc., a Riverside metal manufacturer, agreed yesterday to pay $11,440 in federal fines for exposing its workers to high levels of lead last winter at its Pavilion Avenue Plant,” according to the Inquirer.

It was the third time OSHA had fined Schorsch’s company.

This time, Schorsch’s company's “cooperation contrasted with previous inspections, when the company harassed inspectors and threats against workers were documents during lengthy state and federal civil proceedings," according to the Inquirer.

According to the Inquirer’s reporting, Schorsch’s company “was fined $79,200 in January of 1985 for exposing workers to lead. The firm was fined $43,000 in October 1983 for lead exposure at its now-closed Northeast Philadelphia plant."

READ MORE ABOUT HIS TIME IN PHILLY HERE

 

NY - Billionaire, Lawsuits and the SEC

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.

 

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.

 

“To Rob From Shareholders and Give to Himself and His Friends”

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.

 

$60 Million SEC Settlement, CFO Sentenced to 18 Months in Federal Prison

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.

 

Political Friends - Donations and Board Seats

Along with buying up small businesses — SEE SLIDES BELOW — and has made friends with many local and statewide politicians.

He has used his checkbook to pour tens of thousands of dollars into the campaign coffers of politicos in Rhode Island.

Previous to his relocation to Newport full-time, Schorsch was not a major political donor and generally split his donations between Republicans and Democrats.

Schorsch has now become a major political donor in the state. 

In less than four years, he and his close family members have pumped more than $100,000 into the campaign accounts of top candidates — all Democrats. 

According to campaign finance reports, Schorsch and his immediate family have poured tens of thousands into the coffers of the campaign accounts of now-U.S. Congressman Seth Magaziner.

Schorsch, his wife Shelley, their children and their spouses have donated via state campaign donations, federal donations, and independent expenditures for a total of $32,600 to Magaziner.

The list of donors includes Schorsch’s son-in-law, Brendan O’Donnell — who is also a business partner with Schorsch in the failed SPAC as well as in many of the companies Schorsh has founded in Rhode Island.

Of the $32,600 to Magaziner, $12,500 was donated by Schorsch to the pro-Magaziner independent expenditure called Bright Future Rhode Island.

GoLocal asked the Treasurer of Bright Future Rhode Island, political veteran Paul Tencher, about the criteria for the fund. He said it was primarily a union PAC.

When asked if Bright Future Rhode Island was aware of Schorsch’s previous OSHA fines, environmental issues, and SEC enforcement actions against Schorsch and his companies, Tencher said repeatedly, “We disclosed all our donors; we were transparent.”

He refused to comment on Schorsch’s record in business.

GoLocal asked Magaziner if he had concerns about Schorsch's business record, and the Congressman did not respond.

 

Foulkes, Schorsch and CVS

Another significant beneficiary of Schorsch family donations is former CVS President and gubernatorial candidate Helena Foulkes. She is the recipient of $6,000 from the Schorsch family.

Foulkes has been a big player in retail in America, and Schorsch’s Wall Street company — American Realty Capital Properties, which he was forced to resign from due to accounting issues, lawsuits, and SEC enforcement action — was a major real estate player.

According to SEC filings by Schorsch companies at the time in which Foulkes was a senior officer of CVS, it had tens of millions of dollars in revenue generated by leasing properties to CVS.

Foulkes repeatedly refused to answer questions about her relationship with the Schorsch family.

After Foulkes’ tenure at CVS, she became CEO of Hudson’s Bay Company, a Canadian-based retailer that owned major American retailers like Saks 5th Avenue and Neiman Marcus. And, Foulkes, after receiving a massive payoff to step down at Hudson’s, joined the board of Home Depot and today serves on the board of COSTCO.

There is also the case of State Senator Lou DiPalma, who has received hundreds of thousands of dollars in stock and cash payment for serving on the board of one of Schorsch's companies.

 

Mayor Xay Donates Schorsch Donations, New Mayor Holder Piling Up Donations

One recipient of Schorsch financial support, who has since donated monies to non-profits, is Newport Mayor Xaykham "Xay" Rexford Khamsyvoravong. When GoLocal interviewed him for this series in May, the Mayor was very complimentary of Schorsch, and said he appreciated his financial support. 

When Xay was asked about Schorsch’s game plan as being a major donor, the Mayor said, “The reality of running these campaigns is it takes the resources to effectively communicate with voters, and I think that and members of our community like Nick understand the necessity of the resources so candidates can afford to communicate.”

“It is clear he is engaged on the political front of our community, and I have never received an ask from him other than an offer to help support community initiatives,” said the then-Mayor, who was re-elected to the council in the 2024 fall election, but lost the Mayor's seat to Charlie Holder. 

In April, one of Schorsch's Newport corporations won an important contract with the City of Newport.

Schorsch's firm announced in a national press release, "1899, LLC (now doing business as The Heritage Restaurant Group) is pleased to announce that at tonight's Newport City Council meeting, 1899 was awarded the concessions contract for the 2024 summer season at Easton's Beach. 1899 is a robust, multifaceted restaurant and hospitality company currently overseeing and supporting three brick-and-mortar restaurants in the City of Newport, a fleet of mobile food trucks and mobile food carts, and a state-of-the-art mobile food kitchen."

At the time, now-former Mayor Xay wrote in an email to GoLocal, “I noted that your piece regarding Audrain's donations is forthcoming and wanted to flag some facts that aren't yet on your radar because my latest campaign finance report has not yet been filed.”

“This past quarter, the Audrain organization became a significant vendor to the City of Newport after winning a competitive bid for beach concessions. Because of their increased involvement with the City as a significant vendor, I conducted a review of prior campaign contributions I'd received from individuals associated with Audrain, and donated those funds to community non-profits,” said the former Mayor last summer. 

“I identified contributions from 2023 totaling $2,500 and donated those funds to the following community organizations, which will be reflected on my Q2 campaign finance report as "Donation of contributions received in November 2023 from individuals employed by Bellevue Capital, Newport Craft or Metropolitan Wealth Management."

But while outgoing Xay donated Schorsch's monies, Holder, in a recent Rhode Island campaign finance filing, reported that he received 80% of his campaign funds from “billionaire” Schorsch, his wife, and two close associates.

Of the $10,000 Holder reported in his December 2 post-election campaign finance report, $8,000 was Schorsch connected.

Schorsch, Michael Weil and their wives each gave Holder $2,000. Schorsch and Weil were partners in the embattled American Realty Capital, later known as AR Capital. That company was successfully sued for fraud and fined by the SEC. Schorsch and Weil also serve on the board of the Audrain Automobile Museum together.

 

What Is Next?

Schorsch and his companies have purchased more than a dozen of Rhode Island's best known small businesses.

He has become a major political donor.

Stay tuned.