American Capital REIT is Accused of Charging Hundreds of Millions of Dollars in Excessive Fees

A class action securities case brought by stockholders is accusing American Capital Agency Corp. of charging excessive management fees that were given to directors and executive officers as compensation. The real estate investment trust invests in agency mortgaged backed securities “on a leveraged basis.” Because of this, American Capital must pay 90% of profits to investors as dividends.

 

However, according to William Wall, the lead plaintiff in the REIT case, a number of the individual defendants  “improperly funneled” millions of dollars that should have gone to AGNC stockholders. He said that the REIT’s board allegedly forced the company to pay the AGNC Manager “exorbitant” fees in light of the management agreement between the AGNC Manager and AGNC. The fees went to the defendants. 

 

Noting that the REIT’s dividend is a key metric for its success, the class action securities complaint said that in 2012 the board cut AGNC’s dividend by over 50%. The plaintiff said that the board had the contractural right to either end the unfair management agreement or make the AGNC Manager charge fees that were fairer. Instead,  AGNC allegedly kept paying the manager over $100M annually even though results were “abysmal.”

Last May, AGNC announced that it would be acquiring American Capital Mortgage Company LLC for $572M. This is the AGNC Manager’s ex-parent company. With the acquisition, American Capital became an REIT that was internally managed and, contend the plaintiffs, company directors and executives have made millions of dollars because of this.

 

The stakeholders believe that the individual defendants engaged in behavior to fool stockholders and the investing public about the way AGNC’s operations were run, “drastically” overpaid so the internalization would take place, bettered their positions at AGNC, and benefited from money, power, and prestige that came with these enhanced positions.

 

The derivative defendants in this REIT case are American Capital Agency Corp. CEO Gary Kain, ex-CEO Malon Wilkus, ex-CFO John Erickson, ex-EVP Samuel Flax, and several directors. Wall wants restitution, disgorgement, other costs, and legal fees. 

Our securities lawyers are here to help investors try to recoup their fraud losses. Contact The SSEK Partners Group today to speak with one of our REIT fraud attorneys.