The former chief financial officer and treasurer of Fundrise, the real estate crowdfunding start-up, says he was terminated by the company after alerting its chief executive to what he called “serious fraudulent behavior” and said the company’s assertion that he had tried to extort it for more than $1 million was baseless.
Michael S. McCord’s allegations came in response to two public filings with the Securities and Exchange Commission last month, in which Fundrise alerted investors that it had terminated its chief financial officer and treasurer of nearly two years. The company said that on Feb. 8 McCord “abruptly and without notice” requested $1 million and his outstanding stock awards, threatening he would alert regulators about the company “improperly handling two real estate transactions” unless he was paid within two hours. In the filing, the company said it instead placed McCord on administrative leave and, after he threatened again, ultimately fired him.
Benjamin S. Miller, Fundrise co-founder and chief executive, was named interim chief financial officer and treasurer.
McCord, a certified public accountant and former senior associate at the accounting firm KPMG, disputed the account. In a March 11 email to The Washington Post, he said Miller fired him after he repeatedly raised concerns that Fundrise, which places investments of as little of $1,000 into commercial real estate projects, was conducting business in a way that McCord could not condone. He wrote:
“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.
McCord declined to elaborate on the nature of the alleged fraud. His departure marks the second top executive to leave Fundrise in six months after co-founder and president Daniel Miller, Ben’s half brother, left the company in October.
Fundrise issued a statement in response to McCord’a allegations:
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.
In an interview Benjamin Miller said that prior to Feb. 8 McCord had made no indication that he was troubled about how the company was being run. On that morning he said McCord arrived with two witnesses whom Miller did not know and made his alleged demands in the Fundrise conference room. “The last thing I expected was for him to walk into the office and demand $1 million,” Miller said.
Miller contacted the police and called the SEC. He hired an accounting firm, CohnReznick, to review details of two deals. The following week Fundrise reported to investors in a filing that the accounting firm had concluded that Fundrise’s “methodology for valuing the two assets that were involved in the transactions is generally consistent with typical valuation methodology and is considered reasonable.”
An SEC spokesman declined to comment, citing the agency’s longstanding policy of neither confirming nor denying the existence or nonexistence of any investigations. A D.C. police spokesman said Miller filed a report at the Third District police station, 1620 V Street NW, three-quarters of a mile from Fundrise’s Dupont Circle offices the day after the disagreement.
Police spokesman Dustin Sternbeck said the company reported that “an employee was terminated and demanded $1 million in severance and threatened the company’s reputation” but that there was “no evidence that a crime has occurred.”
“The response of the company was to possibly look into getting a restraining order or possibly getting security in place. But [McCord] didn’t make any threats of bodily harm or anything of that nature. … He hasn’t gone through with any of the threats so at this time no crime has occurred,” Sternbeck said.
Fundrise was an early and fast-rising entrant in real estate crowdfunding, an industry that topped $1 billion in 2014 and by some estimates could hit $3.5 billion by the end of this year. Sons of Herbert S. Miller, one of Washington’s most accomplished and visible developers, Ben and Daniel had raised more than $10 million from individual investors for commercial real estate projects by early 2014.
Fundrise received $31 million in financing in 2014 after Miller was contacted by Chinese social media giant Renren through LinkedIn. Fundrise reported that Renren bought a $27 million stake and it since signed a deal to raise $5 million in funding for a World Trade Center project. It also has a deal with the D.C. government to develop a former library on H Street NE.
When Daniel Miller, 28, left the firm in the fall, Fundrise issued no immediate statement but removed his name and likeness from its web site. Ben, 39, said in an interview that the two disagreed about what direction to take the company. “It’s my brother and it just didn’t work out. You can ask him,” he said.
Ben added that it wasn’t unusual for start-up co-founders to part ways after a company experienced dramatic growth. He said Fundrise now has about 30 employees, and it lists 85,160 registered members online. “We’ve been at this for five years. It might feel like this is an overnight success but we’ve been at this for a while,” Ben said.
Now in Brooklyn, Daniel has launched his own crowdfunding firm dubbed Myrtle Grove Ventures, which refers to itself online as “a global investment holding company with interests in technology, finance, and real estate” focused on “financial investment and investment crowdfunding sectors.” It lists its largest holding as the parent of Fundrise, saying it owns 5 million shares of common stock representing an 18.2 percent ownership stake in the company.
“MGV is headquartered in New York City with plans to expand to Europe in 2017,” the company says online.
Daniel was in Cannes, France this week as part of the MIPIM international real estate conference. His publicist declined to comment but Daniel told industry press that he launched the new company in October. “Within three to five years crowdfunding will be at a scale where it will be competing with institutional investors and those working with the trend will be in the best shape,” he was reported saying.
When asked if he viewed Daniel’s firm as a competitor, Ben said he wasn’t familiar with the company and didn’t know its name.
“I’d have to read about it,” he said.
Follow Jonathan O’Connell on Twitter: @oconnellpostbiz