National Planning Holdings puts kibosh on ARC nontraded REIT sales

A day after Nicholas Schorsch's giant traded real estate investment trust, American Realty Capital Properties Inc., revealed a significant accounting folly, one large broker-dealer network temporarily halted sales of Mr. Schorsch's nontraded REITs. The four broker-dealers in National Planning Holdings Inc. broker-dealer network informed their 3,954 registered reps and advisers Thursday that it was “temporarily suspending nontraded REITs sponsored or distributed by [American Realty Capital] and its affiliated companies,” according to a memo from Steve Dowden, president and chief executive of INVEST Financial Corp., one of the broker-dealers in the group. The others are: Investment Centers of America Inc., National Planning Corp. and SII Investments Inc. A spokeswoman for National Planning Holdings, Melissa Hernandez, declined comment. On Wednesday, American Realty Capital Properties, which is known by its ticker symbol ARCP, disclosed that it had replaced its chief financial officer and accounting officer after the company's senior management learned of accounting errors that reduced its adjusted funds from operations – AFFO – over the first half of this year by close to $23 million. (From the archives: Schorsch called a "maverick in a rough-and-tumble business") The four National Planning Holdings firms that are temporarily suspending sales of ARC nontraded REITs affects only one product, the Phillips Edison – ARC Grocery Center REIT II, according to the memo. The REIT is a small but new REIT, with just $207 million in total assets. Phillips Edison – ARC Grocery Center REIT II is managed, however, by the same team that has run similar successful shopping center REITs in the past. The four firms are also requesting that Realty Capital Securities, the wholesaling broker-dealer for ARC products, return any unprocessed sales orders from INVEST advisers and not process any new business, according to the memo. Mr. Dowden's memo also states that brokers are prohibited from soliciting trades in ARCP and three other listed companies associated with Mr. Schorsch. Those companies and their ticker symbols are RCS Capital Corp., or RCAP, and American Realty Capital Healthcare Trust Inc., or HCT. Another company named in the memo, ARCPP, could not be immediately identified. Unsolicited trades in those securities are allowed and must be marked as such in the firms' systems. “Please note that there is no indication at this time that these events will have a direct impact on the valuation or operation of the current nontraded REITs, but some time is required to fully assess the impact,” Mr. Dowden said in his memo, referring to the accounting problems. “This suspension will remain in effect until the NPH due diligence department can fully assess the situation and is comfortable with the disclosed impact.” (More: A look inside REIT czar Schorsch's empire) The NPH broker-dealers are also requesting American Realty Capital to discontinue dividend reinvestments on ARC nontraded REITs that are no longer up for sale, according to the memo, which also said the restriction in trading of ARCP related stocks will also be re-evaluated. Mr. Schorsch is chairman of American Realty Capital, the leading sponsor of nontraded REITs. Until Sept. 30, he was CEO and chairman of American Realty Capital Properties, which is known by its ticker symbol ARCP. After being replaced as CEO of ARCP by David Kay on Oct. 1, he remains chairman. A spokesman for American Realty Capital, Andy Backman, did not immediately comment.