Despite Steven A. Cohen's investment, RCAP shares face short-term hurdles

Hedge fund giant boosts ownership of broker-dealer

Nov 18, 2014 @ 11:11 am

By Bruce Kelly and Mason Braswell

Hedge fund giant Steven A. Cohen boosting his ownership of shares in RCS Capital Corp. is a positive sign for the company, known by its ticker RCAP, but the stock still faces hurdles in the near term, one investor said.

“I think there is a ton of potential” for RCS Capital, said David Millican, principal of Atlanta Capital Group, a longtime investor in RCAP. “There's true upside to RCAP, but there's no short-term catalyst for the stock to lift.”

Tuesday afternoon, shares of RCAP were ahead one cent, or 0.08%, at $12.20. The stock's 52-week high is $39.98.

Mr. Millican said he would be more optimistic about RCAP's share price after two events. First, when broker-dealers lift their suspensions of selling agreements of two brands of nontraded real estate investment trusts that real estate investment trust czar Nicholas Schorsch controls, American Realty Capital and Cole. Second, whether investor capital from nontraded REITs that list or merge in the first quarter of next year finds a new home in an ARC- or Cole-branded REIT.

Mr. Schorsch is the executive chairman of RCAP, a company that includes 9,100 registered reps and advisers affiliated under the Cetera Financial Group. Both RCAP and ARCP are part of the vast business empire operated by Mr. Schorsch, who is also the former CEO and current chairman of ARCP and CEO of American Realty Capital, the largest nontraded REIT sponsor in the industry.

(More: RCAP confirms regulatory inquiries)

Atlanta Capital clients currently own about 40,000 shares of RCAP, Mr. Millican said, down from about 350,000 on June 30. The firm sold half of the shares at $24 each before American Realty Capital Properties Inc.'s announcement in October of an accounting error in the first half of the year. It sold another large holding at $14 a share immediately after that, Mr. Millican said. He added that Atlanta Capital may increase its position in RCAP at $15 per share.

Broker-dealers began suspending sales of ARC- or Cole-branded products the day after one of the cornerstones of Mr. Schorsch's REIT empire — the large, publicly traded American Realty Capital Properties Inc. — disclosed a $23 million accounting error from the first half of the year that was spotted but intentionally not corrected. Mr. Schorsch is chairman of both RCAP and ARCP and chairman and CEO of ARC. ARCP controls the Cole brand of REITs.

Billionaire former hedge fund manager Mr. Cohen, who now invests through his family office, Point72 Asset Management, boosted his stake in RCS Capital to 5.1%, according to a filing with the Securities and Exchange Commission on Monday.

Mr. Cohen, who turned his hedge fund firm SAC Capital Advisors into his own family office earlier this year as part of a $1.8 billion settlement over insider trading charges, now indirectly owns nearly 3.4 million shares of RCAP, according to the filing.

Stamford Conn.-based Point72 had owned 548,500 shares of the company as of Sept. 30.

A spokesman for RCAP, Andrew Backman, did not return a call to comment.

A spokesman for Point72, Mark Herr, said Mr. Cohen does not comment on the firm's investments. Mr. Herr added that Mr. Cohen typically does not hold positions in companies for a very long time. He also noted that because Mr. Cohen had a position in a company at the time of the filing does not mean that he still owns the company today. The filing was dated Nov. 14 for the three months ended Sept. 30.

(Related: RCAP sales slow down in wake of ARCP accounting fiasco)

An analysis by InvestmentNews of the independent broker-dealers who have ceased selling Cole or ARC REITs shows they have 38,800 reps and advisers. That is about one-quarter of the industry total, based on figures from the Financial Services Institute, a trade group with more than 100 member firms and 160,000 independent reps and advisers.

Brian Block, one of Mr. Schorsch's partners at ARC and ARCP's chief financial officer, resigned last month as a result of the mistake. Mr. Block was also CFO at RCAP for most of 2013.

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