Schorsch’s Issues Extensive but 'Isolated,' Says Nontraded REIT Expert

"If the allegations are true, the credibility of the whole industry [would be] in question," Thomas said. "This is already in play, in my opinion … it's a reality check."

Weathering the Storm

In Gannon's view, though, financial and other controls at companies like ARCP are generally sufficient if personnel in the accounting department have "backbones."

"You have to have people who are able to protect shareholders, who have the ability to stand up and risk their jobs," he explained. "They either have this or they don't. You can't teach it. But it's bad, if that doesn't exist."

The real-estate investment expert says, in fact, it is "rare not to see folks like this in the business, because the financial markets and the regulatory environment are aggressive," Gannon stated. "When there's a sense that something is wrong, people stomp their feet on it."

"This is all emanating from the fact that no one could stand up … and correct the error," he said. "There's no justification for not fixing it, unless it's something like $0.50 on a $20 million account."

As for ARCP's relationship with its investors, "I hope they are on the right path," Gannon explained. "They have to get over some bumps in the road … [With the drop in the share price] the bottom line is that they have eroded a lot of value creation for investors."

Gannon, who says he used to speak with Schorsch once a week when ARCP was getting off the ground, says the situation caught him completely off guard.

"I found Schorsch and others at ARCP generally to be straight shooters," added Gannon. "This is an anomaly from my experience. But it takes your breath away … the caution flag is up. I hope they can weather this storm."