The Massachusetts investigation into alleged proxy vote fraud at Realty Capital Securities, or RCS, has expanded to include independent broker-dealers that sold RCS alternative investments such as nontraded real estate investment trusts.
The widening inquiry was confirmed on Thursday by Brian McNiff, a spokesman for Massachusetts securities division.
“We are investigating other broker-dealers that sold the RCS products,” he said, adding that the focus was on firms referred to in
the complaint filed against RCS on Nov. 12.
RCS employees were in contact with other “broker-dealer agents” and discussed how to solicit proxy votes, according to the complaint. “RCS employees would send a broker-dealer authority letter to broker-dealer agents,” according to the complaint. “RCS never verified if broker-dealer agents had authority to vote client shares.”
Mr. McNiff declined to list the other broker-dealers facing scrutiny of Massachusetts Secretary of the Commonwealth William Galvin, the most widely feared state securities regulator in the country.
RCS CHARGED
The state of Massachusetts earlier this month charged RCS, part of RCS Capital Corp., with fraudulently rounding up proxy votes to support real estate deals sponsored by Nicholas Schorsch's AR Capital.
In the administrative complaint, Mr. Galvin said agents of RCS impersonated shareholders and cast fake votes for investment programs sponsored by AR Capital, which is owned by Mr. Schorsch and his partner, William M. Kahane. Mr. Schorsch is also a principal shareholder in RCS Capital, or RCAP, the parent company of RCS.
The Massachusetts' securities division's investigation into Mr. Schorsch's companies has grown more focused over the past 12 months. A year ago, Mr. Galvin's office launched an investigation into RCS after another company controlled at the time by Mr. Schorsch, American Realty Capital Properties Inc., now Vereit Inc., said it had intentionally left uncorrected a $23 million accounting misstatement from the first half of 2014.
(More: How Nick Schorsch lost his mojo)
COMPENSATION INVESTIGATION
According to RCAP's quarterly report released earlier this week, RCS in April received a subpoena from the Massachusetts securities division regarding “non-cash compensation paid” by RCS. Mr. Galvin's office did not respond to questions about what type of compensation was being investigated or to whom it was paid.
In June, RCS received another subpoena seeking information about a proxy solicitation campaign for an AR Capital product. And at the start of this month the firm got hit with yet another subpoena, seeking information about the Boston office of RCS, according to the quarterly report.
Mahmoud Siddig, a spokesman for RCAP, said the firm had no comment about the Massachusetts investigation widening to include other firms.
