U.S. District Judge George Daniels has approved a $31 million settlement for a class action lawsuit against RCS Capital Corp (RCAP), the bankrupt brokerage firm formerly headed by AR Global founder Nicholas Schorsch. AR Global was previously known as AR Capital (ARC).
Oklahoma Police Pension Fund and Retirement System and the city government of Providence, Rhode Island were the lead plaintiffs in the civil case filed three years ago, shortly after the public disclosure of the October 2014 accounting scandal at affiliated publicly traded REIT American Realty Capital Properties (ARCP).
“Because of the alleged entanglement of RCAP, ARCP, and ARC, and the fact that investors associated all of those entities with defendant Schorsch, the alleged accounting manipulations that occurred at ARCP undercut the credibility, reputation, and business operations of RCAP, as well as ARCP…,” the complaint said.
The complaint was filed in the U.S. District Court for The Southern District of New York and alleges that Schorsch and other senior executives and independent directors “violated federal securities laws by making materially false and misleading statements and omissions concerning the strength of RCAP’s core wholesale distribution and investment banking business and its prospects for success.”
The complaint further alleges that the price of RCAP common stock was artificially inflated as a result of such statements, and “declined when the truth was revealed.”
The class action settlement concerns investors who purchased or RCAP common stock between February 12, 2014 and December 18, 2014. On October 29, 2014, the day ARCP publicly disclosed the accounting scandal, RCAP shares traded for $19.76 each, and by December 18, 2014, shares had plummeted to $9.95 each.
Also named in the RCAP civil suit was Brian Block, the former chief financial officer of ARCP who was recently convicted of securities fraud for his role in the ARCP accounting scandal.
RCAP president Edward Michael Weil, co-founder William Kahane, CFO Brian Jones, CIO Peter Budko, and independent directors Mark Auerbach, Jeffrey Brown, C. Thomas Mcmillen, and Howell Wood were also named as defendants.
RCAP filed for bankruptcy in January 2016.