How do public companies get away with not filing financial statements? Our last post on The Parking REIT noted that it made a filing earlier this year, stating among other items, that it was going to be late filing its 2017 10-K and this year’s first quarter 10-Q. The REIT’s financial reporting process is now more complicated because the REIT, in another filing on May 3, 2018, disclosed that it dismissed its auditor, RSM (formerly named McGladrey) on April 29, 2018. It ha only hired RSM in May 2017, when it dismissed RBSM, LLP. The REIT has re-hired RBSM, LLP as its auditor. The Parking REIT has now missed two reporting periods. It is not alone in this financial disappearance game.
Public REITs United Development Fund IV and First Capital Real Estate have not filed financial statements since the third quarter of 2015. Public BDC First Capital Investment Corporation has not filed a financial statement since the third quarter of 2016. United Development Fund IV dutifully makes its quarterly notification that it is “is working diligently to complete and file all necessary periodic reports as soon as practicable; however, there can be no assurance as to when the Registrant will be able to file such periodic reports.” If United Development Fund IV’s current auditor, EisnerAmper LLP, can’t produce a financial statement in nearly two years (it was retained in June 2016), it will never produce one.
The lack of accountability and penalty-free outcome for ignoring financial requirements has not gone unnoticed. Private placements GPB Holdings II LP and GPB Automotive LP crossed the 2,000 investor limit in 2017 and were required to file as public companies starting in January of this year. This means the two partnerships needed to file 10-Ks, 10-Qs, 8-Ks, and any other appropriate filings. Neither GPB entity has filed anything so far in 2018. And why should they? There are no apparent repercussions for ignoring filing requirements. Broker dealers and investors don’t seem to care, so why should the two GPB entities file anything.