Cetera suspends sales of AR Capital REITs

Broker-dealer takes action after Massachusetts' securities regulator charged a related company with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Capital

Nov 15, 2015 @ 8:27 pm

By Bruce Kelly

Cetera Financial Group, the retail brokerage network owned by RCS Capital Corp., has halted sales of ARC- branded real estate investment trusts and other alternative investments.

According to a source with first-hand knowledge of the decision, all 10 Cetera broker-dealers, not just the four that carry the Cetera name, on Friday suspended until “further review” the sale of all AR Capital products.

AR Capital products are distributed by Realty Capital Securities, or RCS, a wholesaling broker-dealer that is also owned by RCS Capital Corp., or RCAP.

Cetera's halt in sales came a day after the state of Massachusetts charged RCS with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Capital, which is owned by Mr. Schorsch and William Kahane. Mr. Schorsch is also a principal shareholder in RCAP.

(More: Read how Nick Schorsch lost his mojo)

In an administrative complaint, Massachusetts Secretary of the Commonwealth William Galvin said agents of RCS impersonated shareholders and cast fake votes for investment programs sponsored by AR Capital.

Executives at other independent broker-dealers said on Sunday that major clearing firms and other broker-dealers could possibly suspend sales of AR Capital products later this week in the wake of the fraud charges against RCS.

Joseph Kuo, a spokesman for Cetera Financial Group, neither confirmed nor denied Cetera's suspension of AR Capital products. “We conduct ongoing due diligence of all products,” Mr. Kuo wrote in an email to InvestmentNews. “As a matter of policy, we do not publicly discuss specific products and specific product companies."

Andrew Backman, a spokesman for AR Capital and Realty Capital Securities, did not return a call Sunday evening to comment. RCAP is expected to release its earnings on Monday.


Do you think other B-Ds, custodians will follow suit?

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