RCS Proxy Fraud Investigation Expands to Broker-Dealers

On Friday, the Massachusetts Securities Division confirmed that it has expanded the investigation into the fraudulent proxy-voting scheme allegedly performed by Realty Capital Securities to include independent broker-dealers that may have assisted in the scheme.

A spokesperson for Secretary William Galvin said, “We are investigating other broker-dealers in connection with the proxy solicitations that went on at Realty Capital Securities.” The names of the broker-dealers being investigated were not disclosed.

In the November 12th complaint filed against RCS, it was disclosed that in addition to fabricating proxy votes, broker-dealer agents may have helped employees of the embattled company commit proxy vote fraud.

According to the complaint, RCS employees told broker-dealer agents that a representative from RCS could either call clients directly to solicit their vote or a broker-dealer agent could vote on behalf of their clients. According to the complaint, “RCS employees would send a broker-dealer authority letter to broker-dealer agents.” However, RCS would not verify if the broker-dealer agents were authorized to vote proxies for client accounts.

“On at least two occasions RCS received a letter from a broker-dealer agent who purported to maintain authorization to vote proxies for client accounts,” alleged the complaint.

The original investigation charged RCS with fabricating shareholder proxy votes. RCS employees allegedly masqueraded as shareholders to cast proxy votes in favor of investment programs sponsored by AR Capital, which indirectly controls RCS.