The Massachusetts securities division is widening its probe into alleged proxy voting fraud at Realty Capital Securities to include independent broker-dealers and advisers that sold RCS alternative investments, including nontraded real estate investment trusts. According to Massachusetts Secretary of the Commonwealth William Galvin’s complaint against RCS, firm employees communicated with other brokerage firm agents and talked about how to procure proxy votes. Massachusetts securities division spokesperson Brian McNiff said that these employees would send these agents a broker-dealer authority letter without verifying if they “had authority to vote client shares.”
Galvin, in his complaint, accused RCS of fraudulently gathering proxy votes to support real estate deals backed by AR Capital. He said RCS agents pretended to be shareholders and cast bogus votes for AR Capital-sponsored brokers. AR Capital is owned by Nicholas Schorsch and William Kahane. Schorsch is a principal shareholder in RCAS Capital, also known as RCAP, which is RCS’s parent company.
The state regulator has been probing Schorsch-related companies for the past year. In 2014, Galvin began a probe into RCS after American Realty Capital Property, which Schorsch controlled at the time, disclosed that it had purposely not corrected a $23 million accounting mistake.
This week, and in the wake of the charges filed by Massachusetts against RCS Capital, Fidelity Clearing & Custody and Charles Schwab and Corp. (SCHW) made the decision to step selling AR Capital products. Alternative investment products by AR Capital are marketed to advisers via Realty Capital Securities. Also, Cetera Financial Group said it would stop the sales of AR Capital-branded alternative investments, including REITs. The retail brokerage network announced the cessation a day after Galvin charged RCS with fraud.
AR Capital also just announced that it would stop creating new alternative investment products, including nontraded REITs, by the end of the year. The firm said it would concentrate on its current investment products.
AR Capital is among the largest non-traded REIT sponsors. REITs expected to be most affected include:
• American Realty Capital Hospitality Trust
• American Realty Capital Global Trust II
• American Realty Capital Healthcare Trust II
Our nontraded REIT fraud lawyers and REIT fraud attorneys are here to help investors recoup their losses caused by the negligence or wrongdoing of those in the industry. Contact the SSEK Partners Group today.
AR Capital to stop creating new nontraded REITs, close existing programs to new investors, Investment News, November 16, 2015
Secretary Galvin Charges Realty Capital Securites LLC with Proxy Voting Fraud and Seeks Revocation, November 12, 2015