Cetera Financial Group has suspended sales of all AR Capital-sponsored investment offerings through their entire broker-dealer network, including First Allied Securities, Girard Securities, Investors Capital, VSR Financial Services, and The Legend Group. Cetera, the nation’s second largest independent broker-dealer by registered representative count, is the crown jewel of beleaguered RCS Capital Corp. (NYSE: RCAP), which also owns the managing broker-dealer of AR Capital’s offerings. Both RCS and AR Capital were founded by Nicholas Schorsch and his partners, including Michael Weil, who serves as the chief executive officer and a member of the board of directors of RCS.
According to internal Cetera emails provided to The DI Wire by multiple sources, the “temporary suspensions” affect all current AR Capital-sponsored offerings, including:
• American Realty Capital Healthcare Trust III,
• American Realty Capital Hospitality Trust,
• American Realty Capital Global Trust II,
• Realty Finance Trust,
• Business Development Corporation of America II,
• American Real Estate Income Fund (AREIX), and
• AR Mutual Funds.
The emails state that “this temporary suspension should not be construed as an indication that there are fundamental issues with products sponsored by AR Capital, [but] until we learn more, we believe it prudent to take this action.”
The emails indicate that the suspension is due to the “recent news about AR Capital and RCS Securities.” While no specifics were provided, last week saw a rapid succession of unusually bad news for the companies.
Monday morning, it was revealed that Apollo Global Management LLC (NYSE: APO) and AR Capital terminated a previously reported deal in which Apollo was to purchase a 60 percent majority interest for $378 million in AR Global Investments, a new company that would own the asset management business of AR Capital. Apollo was also expected to acquire RCS Capital’s wholesale distribution business for $25 million in cash, but under an amended agreement, RCS Capital agreed to sell its wholesale distribution business, including Realty Capital Securities and Strategic Capital, to Apollo for just $6 million in cash.
Hatteras Funds, an alternative investment funds provider owned by RCS, then disclosed that it intended to repurchase the firm from RCS for $5 million, just 16 months after RCS paid $40 million to acquire the boutique alternative investment firm. The saga continued as Moody’s Investors Service placed a series of RCS ratings on review for downgrade.
On Thursday, the state of Massachusetts charged RCS with allegedly fabricating shareholder proxy votes for AR Capital’s Business Development Corporation of America, an investment fund distributed by RCS on behalf of AR Capital. RCS Capital was also threatened with a delisting notice from the New York Stock Exchange for falling below the $1.00 per share threshold for longer than 30 days, and Standard & Poor’s Ratings Services downgraded its long-term issuer credit rating on RCS Capital Corp. to CCC from B with a negative outlook.
The Schorsch family of companies has been under fire since late last year when an accounting scandal was revealed involving the huge net lease REIT American Realty Capital Properties (now unaffiliated with Schorsch and his company and known as Vereit). Schorsch and his partners at AR Capital have been named in multiple lawsuits since the revelation, and the SEC and other regulatory entities are pursuing investigations into the management of ARCP when it was a part of the AR Capital empire.