SEC Charges W.P. Carey Executives In Fraudulent Payment Scheme

by Mike Godfrey, for LawAndTax-News.com, Washington

19 March 2008

The Securities and Exchange Commission (SEC) on Tuesday filed settled securities fraud charges against W.P. Carey & Co., a manager of real estate investment trusts (REITs), and two of W.P. Carey's senior executives for paying undisclosed compensation to a brokerage firm that sold the REITs to investors.

W.P. Carey did not disclose the payments to the broker-dealer, as it was required to do in the REITs' offering documents, and misrepresented the payments in the REITs' periodic filings, the SEC explained.

REITs are entities that invest in different kinds of real estate or real estate related assets such as office buildings, retail stores, and hotels.

The SEC complaint named as defendants W.P. Carey & Co.; John J. Park, formerly the chief financial officer of W.P. Carey, until this week a managing director of strategic planning at W.P. Carey and currently an employee in charge of strategic planning; Claude Fernandez, formerly the chief accounting officer and currently a managing director of W.P. Carey; and Carey Financial, LLC, a broker-dealer subsidiary of W.P. Carey.

To settle the SEC's charges, W.P. Carey agreed to pay approximately USD30mn— approximately USD20mn in disgorgement and interest and USD10m in penalties.

Park's settlement includes a five-year bar from serving as an officer or director of a public company, and a USD240,000 penalty.

Fernandez's settlement includes a two-year suspension from appearing before the Commission as an accountant and a USD75,000 penalty.

"This case makes clear that the SEC will not tolerate undisclosed payments like those at issue here," observed Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

"What a brokerage firm is being compensated for in selling a particular investment is critical information to investors because it goes to the heart of the broker's investment recommendation," she added.

Mark K. Schonfeld, Director of the SEC's New York Regional Office further commented:

"This case is about making sure investors receive accurate and complete information on which to base their investment decisions. The defendants not only failed to disclose the payment of additional compensation to the brokerage firm selling W.P. Carey's REITs, but also went to great lengths to conceal the additional payments."

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