RCS Capital Corp. is closing its wholesaling brokerage unit following allegations of fraud and a drop in its sales of nontraded real estate investment trusts. InvestmentNews reports that according to a source, about 150 employees at Realty Capital Securities are expected to be laid off, as are another 50 employees who work elsewhere in the company.
The company also announced that it has settled the proxy fraud allegations made against it by Massachusetts’ securities division and it will pay $3 million. The state’s Secretary of the Commonwealth William Galvin accused the broker-dealer of fraudulently collecting proxy votes to back real estate deals that were sponsored by AR Capital, which is owned by former real estate magnate Nicholas Schorsch. He still is a principal shareholder of RCAP stock. It was Realty Capital Securities that raised hundreds of millions of dollars in equity each month for retail investors who bought Schorsch REITs just a few years ago.
Galvin’s office has been looking at Realty Capital Securities ever since American Realty Capital Properties Inc., now known as Vereit Inc. and also once controlled by Schorsch, admitted to intentionally leaving unfixed a $23 million accounting error last year. In Galvin’s case, Realty Capital Securities agents are accused of pretending to be shareholders and casting bogus votes for the AR Capital-sponsored programs.
Meantime, Robert Grunewald, who was chief investment officer, COO, and president of Business Development Corporation of America has resigned. BDCA is the AR Capital nontraded business development company involved in Galvin’s case.
Apollo Global Management was supposed to acquire Realty Capital Securities for $25M. However, right before Galvin’s lawsuit against the brokerage firm was filed, Apollo announced that it was now willing to pay just $6M for the brokerage unit.
In related news, William Kahane, the co-founder of AR Capital, has stepped down as the director from REITs American Realty Capital Global Trust II Inc. and American Realty Capital New York City REIT Inc.
RCAP to close wholesaling REIT division after charges of fraud, declining sales, Investment News, December 2, 2015
Read Galvin’s complaint (PDF)
Realty Capital Securities to Shut Down and Pay $3 Million Fine to Massachusetts, The New York Times, December 2, 2015