In February 2016, the CFO and treasurer of Fundrise’s new eREIT was fired over rumors of extortion. The news was made public after the company filed an SEC report claiming that their employee, Michael McCord, attempted to extort over $1 million from the company. We now know a little bit more about the circumstances surrounding these allegations and the results of the investigations that followed.
It all started on February 8 2016. McCord threatened to reveal the company’s fraudulent behavior in regards to two real estate deals if he did not receive the payout he requested, which he referred to as severance. The CFO was placed on administrative leave and ultimately fired for making these demands. In a statement, Fundrise shared:
“Over a month ago, we terminated McCord after what we believe to be a criminal extortion attempt, where McCord threatened to hurt the company by making wild accusations unless we agreed within two hours to pay him nearly $1 million and give him more stock in the company. We took immediate steps to protect our investors by reporting the matter to the Securities and Exchange Commission and the police department, as well as by opening our books to a top-10 independent accounting firm.”
McCord stands by his decision to speak out against what he thinks is unethical behavior from the company. He claims that the extortion allegations are false and meant to cover up Fundrise’s bad behavior. As a safety measure, Fundrise’s co-founder and CEO Ben Miller hired an independent accounting firm to look into the deals that McCord claimed were fraudulent. The results of their investigation and that of police found no evidence of criminal activity.
Fundrise’s new eREIT takes advantage of Regulation A+ rules to give both accredited and unaccredited investors the chance to benefit from crowdfunded real estate deals. Investors can get in on these deals for as little as $1,000. As the Fundrise website states:
“We think today’s model of investors paying large fees to investment managers regardless of their performance makes no sense. We’ve come up with a simple yet radical idea to hold ourselves accountable to our investors: During the first two years of operations (until Dec 31, 2017), you pay $0 in asset management fees unless you earn a 15% annualized return.”
The eREIT has been popular with investors, opening for short periods before closing again. At the time of writing on March 30th, the eREIT is open to wait-listed investors up until $2 million in shares are sold.
