Last month, Crowdfund Insider reported that Fundrise had terminated its CFO for allegations of extortion. In a filing with the SEC, Fundrise CEO and founder Ben Miller stated;
“I am saddened to have to inform you that an employee of our company has engaged in what we believe to be an attempt to extort over $1M from the company.”
The employee in question was Michael S. McCord, who had been hired by Fundrise in 2014.
In a letter published by the Washington Post, allegedly authored by McCord, the former Fundrise employee claimed innocence of the serious allegations;
“The extortion allegations are baseless, and nothing more than a pathetic deflection attempt from the real story. On February 8, 2016 at 10:00 a.m., I repeated my concerns about what I believed constituted serious fraudulent behavior at the company to Benjamin Miller, CEO, and told him that I would not participate in it. We exchanged severance proposals without agreement.
By 11:00 a.m. and without any further communication from anyone, the company constructively terminated my employment by removing me from their website, discontinuing access to essential information systems, removing access to critical company files, and terminating email access.
I have been and will remain willing to fully participate in any legitimate investigation by the SEC or other authorities. The outpouring of support I’ve received from people both inside and outside of the company has been incredible, and I’d like to thank everyone who has reached out.”
The Post apparently received a response from Fundrise that effectively reaffirmed Fundrise’s previous position;
“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.”
The article continues to explain that, in an interview, Ben Miller stated McCord showed up at the Fundrise offices with two other individuals he did not know on February 8th. At that time, McCord allegedly made the $1 million demand.
The article in the Post also quotes a Police spokesperson that acknowledged the claim by Fundrise but denied any evidence of a crime.
Miller apparently hired CohnReznick, an accounting firm, to review valuation methodologies on two deals in question and CohnReznik delivered a clean bill of health.
While the mud-slinging will probably continue, either between opposing attorneys or within the court system, the shocking allegations are viewed with concern from the broader real estate crowdfunding industry. Fundrise has been a high-profile trailblazer and respected participant in the real estate crowdfunding sector having launched before any other platform. At the same time, some news outlets have been critical of the operations of Fundrise – something that may cast a pall over the rest of the industry.
Fundrise recently created an “eREIT” by using updated rules under Title IV of the JOBS Act known as Reg A+. The regulations allow Fundrise to solicit retail investors for investments in their fund. A recent email from Fundrise revealed that interest remains robust as they seek to fill out a real estate portfolio of up to $50 million. The scandalous allegations regarding the dispute between McCord and Fundrise certainly will not benefit Fundrise.