Fidelity, Schwab to halt AR Capital sales

Firms pull the plug after Massachusetts charges RCS Capital with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Capital

Nov 19, 2015 @ 12:41 pm

By Bruce Kelly

A major clearing firm, Fidelity Clearing & Custody, and a leading custodian for registered investment advisers, Charles Schwab & Co. Inc., have halted or will halt by the end of the week sales of AR Capital products.

Nicholas Schorsch's AR Capital's nontraded real estate investment trusts and other alternative investment products are marketed to advisers through Realty Capital Securities, or RCS, a wholesaling brokerage that was charged last week by Massachusetts with fraud.

RCS, a division of RCS Capital Corp., was charged with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Capital.

Fidelity and Schwab will be halting sales weeks before AR Capital shuts the pipeline down itself.

In a major reversal, the company said Monday that it would stop creating products and stop selling alternative investment products by the end of the year.

Spokeswomen for Fidelity and Schwab confirmed the decisions via email.

“Effective (Thursday), Fidelity will no longer facilitate new purchase subscriptions for certain Realty Capital Securities-distributed REIT and (business development company) products,” wrote Nicole Abbott, a spokeswoman for Fidelity Institutional.

“Effective Friday, Schwab is suspending purchases of interests in non-listed [AR Capital] products,” wrote Schwab spokeswoman Susan Forman. “Existing positions in these funds will continue to be serviced and maintained by Schwab in accordance with our normal servicing standards.”

A spokeswoman for Pershing, Cassandra Osei, did not immediately respond to questions regarding whether it will continue sales of ARC branded products distributed through RCS.

Also last week, Cetera Financial Group, the retail brokerage network owned by RCS Capital, halted sales of ARC-branded REITs and other alternative investments.

Meanwhile, spokespeople for two other large broker-dealer networks, AIG Advisor Group and National Planning Holdings, confirmed that it had not lifted the suspension of AR Capital products from last year. That's when another company formerly controlled by Mr. Schorsch, American Realty Capital Properties Inc., now Vereit Inc., reported a $23 million accounting error over the first half of 2014 that was intentionally uncorrected.

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