Fraud Case Against Brixmor Execs Dropped
U.S. Attorney Audrey Strauss’ office in Manhattan announced that her office couldn't prove the case against Carroll and Pappagallo, after which U.S. District Judge Colleen McMahon in New York dismissed the case on Thursday.
The judge also dismissed the cases against Steven Splain and Michael Mortimer, two former Brixmor executives who each had pleaded guilty in 2019 to one count of securities fraud and one count of conspiracy to commit securities fraud.
The securities fraud, false filings charges and false certification charges could have put Carroll and Pappagallo in prison for as much as 20 years. The charge of conspiracy carried a maximum term of five years.
The prosecutors cited new information that had come to light concerning “particular accounting adjustments that form a significant portion of the allegedly misstated metric charged in the indictment,” Reuters reports.
The two had been charged concerning an unproven scheme to “smooth” a key metric reported in Brixmor’s public filings. The indictment, which was unsealed in August 2019, alleged the company reported false figures for every quarter from Q3 2013 to Q3 2015.
Brixmor, which owns grocery-anchored shopping centers, experienced considerable fluctuation during that period in same-store net operating income across its more than 500 properties. The numbers were alleged to have been cooked so the REIT's NOI appeared more consistent from quarter to quarter.
“The charges depend on a theory of materiality that makes no economic sense, has been squarely rejected even in civil cases, and is contrary to conclusions of both Big Four accounting firms that reviewed the relevant financial statements,” attorneys Peter Neiman and Anjan Sahni, who defended Carroll, wrote in a brief, as reported by Bloomberg.
Previously, New York-based Brixmor paid a $7M fine to resolve SEC charges in the matter but did not admit any wrongdoing.