A former Toledo real estate executive has been indicted on criminal charges alleging he committed securities fraud and other illegal acts in filings with the U.S. Securities and Exchange Commission while he was running Brixmor Property Group, a publicly-traded real estate investment trust, from 2013 to 2015.
Michael Carroll of New York was indicted on Aug. 1 by a grand jury convened by the U.S. District Court for the Southern District of New York. The indictment included six counts involving securities fraud, making false statements in SEC filings, and issuing false certifications.
Three other senior executives of Brixmor also were indicted on criminal charges. Steven Splain and Michael Mortimer both pleaded guilty to the charges. Mr. Carroll and chief financial officer Michael Pappagallo have not entered a plea.
In a parallel action, the four plus Brixmor Property Group were charged with fraud by the SEC. Brixmor has agreed to settle the SEC charges and pay a $7 million fine. Mr. Splain and Mr. Mortimer have agreed to the entry of partial judgments against them, which are to be determined later by the court.
Mr. Carroll also had been facing a multi-million-dollar lawsuit filed by four Toledo area businessmen last October who had alleged that the ex-Brixmor CEO, in conjunction with a hedge fund, had helped enact a scheme to undermine a local real estate investment trust, Devonshire LP.
But that lawsuit was dismissed in its entirety on July 31 by Lucas County Common Pleas Judge Myron Duhart. Judge Duhart’s ruling is being appealed by the four businessmen.
Prior to the sale, the four businessmen had hired Mr. Carroll to be Devonshire’s CEO, though during a job interview Mr. Carroll had failed to disclose that he had left Brixmor because of the activities alleged in the recent grand jury indictment and SEC charges.
In its indictment, the grand jury alleged that the four Brixmor executives used an accounting scheme that falsely inflated and deflated Same-Store Net Operating Income of Brixmor-owned properties from the third quarter of 2013 through third quarter of 2015.
Their manipulation of data made sure that the Brixmor’s financial statements always fell within its announced earnings guidance, thereby fooling investors into thinking Brixmor was consistently meeting its financial growth targets. In emails obtained by investigators, the four referred to the manipulation as “mak[ing] the sausage.”
Financial penalties for securities fraud can range from $10,000 to $5 million for cases involving insider trading. A securities fraud conviction also can result in a five-year federal prison sentence per offense.
First Published August 5, 2019, 10:36 p.m.
