Remnants of bankrupt company RCS Capital must pay shareholders $31 million as part of a settlement approved Thursday in federal court.

The settlement was the first to be reached from a series of civil claims filed in connection with an accounting scandal at American Realty Capital Properties, a REIT firm whose investment products were sold through RCS. Nicholas Schorsch was executive chairman of RCS and chairman of American Realty Capital.

RCS declared bankruptcy in 2016. The former CFO of American Realty Capital, Brian Block, was found guilty of fraud in June in a criminal case.

U.S. District Court, Manhattan
U.S. District Court, Manhattan

The civil suit, a consolidation of several claims, alleged that securities fraud had caused RCS shareholder losses of $313 million, according to a recent court filing by the plaintiffs. The $31 million will be paid by RCS insurance policies, according to the settlement.

In the suit, the Oklahoma Police Pension Fund and Retirement System and the city government of Providence, Rhode Island, as lead plaintiffs, accused RCS Capital, Schorsch, other executives and affiliated firms of making “false and misleading statements and omissions” about RCS’ financial results. The case concerns shareholders who bought RCS stock between February and December 2014.

Calling the settlement “fair, reasonable and adequate for the class,” U.S. District Judge George Daniels approved the terms, including $9.5 million in attorney fees and expenses. Lawyers for both sides declined to comment on the settlement.

The civil suit against RCS Capital claims the shareholders purchased the company’s stock at “artificially inflated prices” due to “materially false and misleading” statements.

The settlement received preliminary approval in June. In a filing, the plaintiffs said that recovering around 10% of the maximum damages would represent an “outstanding result, particularly when compared to the risks that continued litigation might result in a vastly smaller recovery, or no recovery at all.” The $31 million settlement represents about one-tenth of the claimed losses.

Daniels approved a plan that allows shareholders covered by the suit to seek their share of the payout.

Schorsch’s nontraded REIT distribution platform once spread across hundreds of broker-dealers, and tens of thousands of advisors. The complaint in the now-settled case traced the history of the accounting scandal and its shareholder impact.

Another case involving shareholders of American Realty Capital is still pending, and Block awaits sentencing in his criminal case this month.

A jury convicted Block after prosecutors accused him of falsely boosting a key non-GAAP earnings measure called adjusted funds from operations. Investigators in Block’s criminal case said the company exaggerated this metric by about $13 million in the first half of 2014.

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