Nicholas Schorsch's REIT empire showed further strains Wednesday after his broker-dealer network, Cetera Financial Group, said it suspended sales of nontraded real estate investment trusts with the Cole brand.
Cetera Financial Group is a subsidiary of RCS Capital Corp., or RCAP, of which Mr. Schorsch is executive chairman. Another part of Mr. Schorsch's empire, the large publicly traded REIT American Realty Capital Properties Inc., or ARCP, owns Cole Capital Partners and Cole Capital Advisors Inc.
Mr. Schorsch was chief executive and chairman of ARCP until Oct. 1. He continues as the company's chairman.
ARCP is under fire after it revealed last week a $23 million accounting error in the first half of the year that was intentionally uncorrected. Several large broker-dealers have said they are suspending sales of Cole REITs along with REITs sponsored by American Realty Capital, known as ARC, the third leg of Mr. Schorsch's empire.
Mike Weil, chief executive of RCAP, confirmed Cetera's suspension of sales on Cole nontraded REITs.
“There is a suspension that was issued by Cetera Financial Group,” Mr. Weil said Wednesday morning in Denver during an interview at the Schwab Impact conference for advisers. “Cetera is an independent platform. And they have Larry Roth as CEO and chief strategy and risk officer John Grady as well as an investment committee which I'm not a part of. They will follow their process in this regard as they would in any [instance], and I think that's the true test of a good platform.”
RCAP and ARCP already had locked horns earlier in the week.
On Monday, RCAP said it was pulling out of an agreement to buy Cole Capital Partners and Cole Capital Advisors from ARC. RCAP and ARCP announced the Cole deal at the start of last month. RCAP was to pay at least $700 million for the Cole assets.
As a result of the accounting problem, ARCP's chief financial officer, Brian Block, resigned. Mr. Block is also a partner at ARC although he currently has no direct involvement with any of the ARC products.
Representatives of RCAP did not directly respond when asked why Cetera did not also suspend REITs packaged and managed by ARC.
“Consistent with Cetera Financial Group's longstanding processes, we conduct ongoing due diligence of all open nontraded REITs,” said Joseph Kuo, a spokesman for Cetera Financial Group. “Beyond this, and as a matter of policy, we do not publicly comment on specific products and product companies.”
Meanwhile, RCAP went to extraordinary lengths Wednesday morning, issuing a statement that it was a separate public company independent from ARCP.
Andy Merrill, a spokesman for ARCP, did not return a call to comment about Cole.