RCS Capital Corp. said Wednesday it is shutting down its wholesaling brokerage division in the wake of declining sales of nontraded real estate investment trusts and allegations of fraud.
The company said closing the division would result in the layoff of about 150 employees. Another 50 employees working elsewhere in the company would also lose their jobs, bringing the total job loss to about 200, according to a company source.
RCAP was founded by one-time real estate mogul Nicholas Schorsch, who is still a principal shareholder in the company. The wholesaling brokerage division, Realty Capital Securities, was a cornerstone of his nontraded REIT empire, which at its height just a few years ago raised hundreds of millions of dollars per month in equity from mom-and-pop investors who bought Mr. Schorsch's REITs.
(More: How Nick Schorsch lost his mojo)
Along with announcing the winding down of Realty Capital Securities, which will finally close its doors in March, RCAP said the unit had reached a $3 million settlement with the Massachusetts securities division. Last month, the division charged Realty Capital Securities with fraudulently rounding up proxy votes to support real estate deals sponsored by Mr. Schorsch's AR Capital, the company that managed his REITs.
“RCS is pleased to confirm it has reached a mutually acceptable resolution with the Massachusetts Securities Division regarding the division's administrative complaint in connection with (Realty Capital Securities') shareholder proxy solicitation process,” wrote RCAP spokesman Andy Backman, in an email.
A year ago, Mr. Galvin's office launched an investigation into Realty Capital Securities after another company controlled at the time by Mr. Schorsch, American Realty Capital Properties Inc., now Vereit Inc., said it had intentionally left uncorrected a $23 million accounting misstatement from the first half of 2014.
RCAP's announcement that Realty Capital Securities will close also signals the end of the previously announced acquisition of the division by Apollo Global Management.
Apollo in August said it intended to buy Realty Capital Securities for $25 million as a way to pry its way into the distribution of its alternative investments into the retail market. A few days before Massachusetts filed its complaint against Realty Capital Securities, Apollo said it was willing to pay $6 million for the division. Now the unit will no longer exist.
RCAP now can focus fully on Cetera Financial Group, its independent broker-dealer network of 9,500 financial advisers, said Mark Auerbach, RCAP's non-executive chairman, in a statement.
“Today's actions represent the continued execution of our previously announced strategic plan to reposition the company as a pure-play, Cetera-focused retail advice business,” said Mr. Auerbach. “After careful consideration, the board concluded that the wind down of the Realty Capital Securities wholesale distribution business was essential in our continuing efforts to create a leaner, more efficient organization dedicated to realizing the full earnings potential of Cetera Financial Group.”