By Nate Raymond
(Reuters) – U.S. prosecutors are dropping accounting fraud charges against the former chief executive officer and onetime chief financial officer of Brixmor Property (NYSE:) Group Inc, who were accused of manipulating a key financial metric for the large shopping center owner and operator.
Federal prosecutors in Manhattan in a court filing said they concluded based on new information that they could not prove their case against former CEO Michael Carroll and ex-CFO Michael Pappagallo, prompting a judge to dismiss the case on Thursday.
That information concerned “particular accounting adjustments that form a significant portion of the allegedly misstated metric charged in the indictment,” prosecutors said.
Prosecutors also dropped charges against two former executives who had pleaded guilty, Steven Splain and Michael Mortimer.
“We are pleased that the government now agrees with what we have said from the beginning: this prosecution should never have been brought,” said Victor Hou, a lawyer for Carroll at Cleary Gottlieb Steen & Hamilton.
Gregory Kehoe, Pappagallo’s attorney at Greenberg Traurig, said he appreciated the decision by U.S. Attorney Audrey Strauss’ office to take the “extraordinary” and “rare” step to dismiss the case.
The U.S. Securities and Exchange Commission said it is evaluating dismissing a related civil case.
A spokesman for Strauss declined to comment.
Brixmor, a New York-based real estate investment trust (REIT) with about 421 shopping centers, agreed in 2019 to pay a $7 million fine to resolve SEC charges, without admitting wrongdoing.
Investigators began examining Brixmor in February 2016 after the REIT said it had uncovered “smoothing” in same property net operating income (SP-NOI), a measure for investors of a REIT’s financial performance.
Prosecutors said Carroll and Pappagallo falsely touted the consistency of Brixmor’s SP-NOI growth rate, with Carroll describing it at an industry conference as the REIT’s “secret sauce,” when in fact the rate fluctuated significantly.
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