Some broker-dealers resume selling Schorsch-related REITs

RCS Capital Corp. on Monday said it was regaining the confidence of the independent broker-dealers that sell its nontraded real estate investment trusts and other alternative investment products. In a press release, it said broker-dealers had recently reinstated 51 selling agreements for products. It did not name the broker-dealers or the products. RCS Capital, or RCAP, has 1,020 selling agreements for its array of nontraded REITs and other products with 250 broker-dealers, according to the company statement. Nontraded REIT czar Nicholas Schorsch is executive chairman of RCAP. He is also chairman and former CEO of American Realty Capital Properties Inc., or ARCP, a giant, traded REIT that focuses on the net-lease sector, and he controls a giant real estate sponsor, American Realty Capital, or ARC. A month ago, ARCP revealed a $23 million accounting error over the first half of the year that was intentionally not corrected. (Schorsch insight: Untangling Nicholas Schorsch's vast web of businesses) The revelation of the accounting error immediately sent shockwaves through the independent broker-dealer community, as well as Mr. Schorsch's nontraded REIT empire. An InvestmentNews analysis showed that broker-dealers with close to 40,000 registered reps and investment advisers, about a quarter of the independent broker-dealer industry as counted by trade group Financial Services Institute, had temporarily halted sales of Schorsch-related REITs from ARC and another related brand, Cole. RCAP's wholesaling broker-dealer, Realty Capital Securities, distributes ARC-branded products. ARCP distributes the Cole-branded REITs. “We have consistently communicated to the market our belief that the suspensions of certain of our ongoing selling agreements were of a temporary nature,” said Bill Dwyer, CEO of Realty Capital Securities. “The reinstatement of these agreements and this initial resumption of sales are confirmation of this belief.” Meanwhile, RCAP senior executives purchased a total of 79,165 shares of the company's common stock last week, the company said. Those executives included Mr. Dwyer and RCAP CEO Michael Weil. Mr. Schorsch was not on the list of executives who bought more RCAP shares last week. “The recent purchase of RCS Capital shares by management underscores our firm belief that the company's current market valuation does not properly reflect the fair value of the business' robust fundamentals, earning power, growth prospects and significant competitive advantages,” Mr. Weil said. RCAP shares on Friday closed at $10.90, down almost 45% in the past month.