In the past, we said we saw American Realty Capital (ARCP) as an opportunity until we heard otherwise. Well, on Monday and Tuesday of this week, we officially heard otherwise. The stock was hit hard on both days on corporate governance news that was released Monday morning. On Tuesday, during the trading day, Moody's cut their credit rating of the company, suggesting also that future cuts may not be out of the picture. Here is the report from Seeking Alpha.
The stock rebounded afterward, moving back up to the mid-$8 range. Our very last piece, published just days ago, stated why we were exercising caution once again, due to the odd nature of the entire executive suit being thrown out. All was once again quiet on the ARCP front until midday on Thursday, when a Wall Street Journal article was published claiming that the rabbit hole at ARCP may go deeper than many had anticipated. The article cites a lawsuit that was filed against Nicholas Schorsch and David Kay. The suit, seeking damages of over $50 million, claims that Schorsch allegedly ordered that the company's financials be "manipulated" in July.
Schorsch's other company, RCS Capital (NYSE:RCAP), is taking the brunt of the hit, down 15% at the time of publishing this piece. Earlier in the week it was reported that Schorsch has been completely separated from American Realty Capital, which could be the reason investors have only pushed the stock down 5.6% so far today.
In keeping with our earlier prognostication, we remain very cautious about ARCP.
Disclosure: The author is short ARCP.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.