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RCS Proxy Vote Scandal Results in Fines for 7 BDs

Regulators in Massachusetts fined seven broker-dealers in connection with the Realty Capital Securities proxy fraud scandal that shuttered the firm last December.

An ongoing investigation, led by secretary of the commonwealth William Galvin, uncovered seven broker-dealers that aided RCS in casting fraudulent proxy votes on behalf of investors of American Realty Capital Trust V Inc. and American Realty Capital Healthcare Trust II, two non-traded REITs, and Business Development Corporation of America, a non-traded business development company.

Voya Financial Advisors Inc., FM Capital Corporation, Invest Financial Corporation, Newbridge Securities Corporation, Plaiter Securities LLC, Platinum Wealth Partners Inc and TOG Financial were fined a total of $238,000 for their role in the scandal. The firms were also hit with permanent cease and desist orders, as well as orders to change their supervisory policies and procedures on proxy voting.

Last November, the Massachusetts Securities Division exposed the RCS scandal when a number of its registered agents imitated shareholders in order to cast votes favoring proposals that would benefit the company.

“My office uncovered how RCS’ own employees fabricated numerous shareholder proxy votes, but in these cases they were assisted by other financial services firms,” said Galvin. “A registered firm that fails to have reasonable compliance procedures in place to protect their clients’ voting rights creates a breeding ground to allow this to happen. That will not be tolerated in the Commonwealth.”

Late last year, Massachusetts regulators fined Realty Capital Securities $3 million for violating the Massachusetts Uniform Securities Act for its role in the proxy fraud debacle. In connection with the violation, the firm also agreed to withdraw its broker-dealer license in Massachusetts and all other state and federal jurisdictions and shut down.

The regulators initially started their investigation following the October 2014 disclosure that an affiliated company, American Realty Capital Properties, now Vereit (NYSE: VER), intentionally left a $23 million accounting error uncorrected and subsequently covered up the mistake.

American Realty Capital, the real estate investment empire found by Nicholas Schorsch, now does business as AR Global.

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