The state of Massachusetts is expanding its investigation into Nicholas Schorsch's real estate empire.
William Galvin, secretary of the Commonwealth of Massachusetts, in November launched an investigation into Realty Capital Securities, the wholesaling broker-dealer arm of Mr. Schorsch's nontraded real estate
trust empire. Now, he is investigating not only Realty Capital Securities but three other entities Mr. Schorsch controls: American Realty Capital Properties Inc., or ARCP, the giant traded
REIT that Mr. Schorsch resigned as chairman from this week; American Realty Capital, the alternative investment manager and sponsor of which he is chairman and chief executive; and RCS Capital Corp., the publicly traded brokerage holding company of which he is executive chairman.
(More: Massachusetts regulator Galvin investigating Schorsch B-D)
Massachusetts' widening investigation of Mr. Schorsch's empire is related to a blockbuster defamation lawsuit by Lisa McAlister against ARCP, Mr. Schorsch, and David Kay, the former CEO of ARCP. In the complaint, filed on Thursday in New York State Supreme Court in Manhattan, the former ARCP chief accounting officer alleges that she and another former top executive were made scapegoats by Mr. Schorsch and other executives for a $23 million accounting error cover-up that rocked the company when it was disclosed at the end of October.
Brian McNiff, a spokesman for the Massachusetts Securities Division, said on Friday the division had sent subpoenas “to officials in those companies to determine the extent of their knowledge in the matters brought up in the defamation suit.” He declined to name the specific individuals who received the subpoenas or how many executives received them.
Mr. McNiff added that the securities division was not investigating allegations of defamation but rather the timing of what certain executives knew regarding accounting information that was contained in the lawsuit. “What did they know, and when did they know it,” Mr. McNiff said.
Ms. McAlister's complaint is only against one of Mr. Schorsch's companies, ARCP, from which he resigned as chairman on Monday. She did not sue RCAP or ARC.
Andy Merrill, a spokesman for ARCP, did not return a call on Friday to comment. Tony DeFazio, a spokesman for American Realty Capital and Andrew Backman, a spokesman for RCS Capital, also did not comment.
