The Financial Industry Regulatory Authority Inc. on Monday barred two former Realty Capital Securities salesmen involved in the 2015 proxy fraud that led to the eventual closing of that firm.
Realty Capital was the wholesaling broker-dealer controlled by former nontraded real estate investment trust czar Nicholas Schorsch. The firm's primary business was selling REITs managed by American Realty Capital, the leading manager of nontraded REITs in the years following the credit crisis. Mr. Schorsch also controls ARC, a privately held company.
Christopher Michael Tenaglia worked for Realty Capital from August 2010 until October 2015, and was a wholesaler in the firm's Boston office, according to the Finra settlement.
Likewise, Eric Ovesen also worked in Boston for Realty Capital from November 2013 until November 2015, and worked as a registered representative, according to his settlement.
That November, the state of Massachusetts charged Realty Capital Securities, which was part of the now defunct RCS Capital Corp. brokerage network, with fraudulently rounding up proxy votes to support real estate deals sponsored by Mr. Schorsch's ARC.
In an administrative complaint, Massachusetts Secretary of the Commonwealth William Galvin said agents of Realty Capital Securities impersonated shareholders and cast fake votes for investment programs sponsored by ARC.
Less than a month later, RCAP said it was shutting down Realty Capital Securities in the wake of declining sales of nontraded real estate investment trusts and Mr. Galvin's allegations of fraud. Realty Capital said it reached a $3 million settlement with Massachusetts relating to the fraud allegations when it closed.
Both Mr. Tenaglia and Mr. Ovesen consented to being barred without admitting or denying Finra's findings. In both orders, Finra noted that Realty Capital reported the terminations of both Mr. Tenaglia and Mr. Ovesen in November 2015 due to concerns regarding their roles in communications involving impersonating shareholders for proxy voting.
Both Mr. Tenaglia and Mr. Ovesen failed to testify at Finra's request, a violation of industry rules that can result in Finra barring a broker or wholesaler. Mr. Tenaglia could not be reached to comment and Mr. Ovesen did not respond to a request to comment via his LinkedIn page.
Meanwhile, on Friday, Finra suspended for two years another former Realty Capital sales agent, Conor Knox Hobert, over the proxy fraud issue. Mr. Hobert worked at Realty Capital from August 2014 until November 2015 and participated in the proxy fraud, according to the Finra order.
Mr. Hobert broke industry rules when he impersonated three shareholders and voted their shares without their knowledge and consent, according to Finra.
"Between May and September of 2015, at the direction of his supervisor, Hobert impersonated three shareholders and cast false proxy votes on their behalf in connection with the annual shareholder meetings for various funds," according to the settlement.
"Also at the direction of his supervisor, Hobert participated on several telephone calls where his supervisor impersonated two financial advisers or shareholders to cast at least 35 false proxy votes in connection with the annual shareholder meetings for various funds."
"Proxy season was a high-pressure environment, and [Realty Capital] employees were encouraged to work long hours and make no less than 200 calls to shareholders per day," according to Finra. "At one point [Realty Capital] management was monitoring the progress of the proxy solicitation calls every 30 minutes."
Mr. Hobert could not be reached to comment.