RCAP Shutting Down Wholesaling REIT Division After Fraud Charges, Drop In Sales

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RCAP Shutting Down Wholesaling REIT Division After Fraud Charges, Drop In Sales

RCS Capital Corp. (“RCAP”) announced this week that it is closing its wholesaling brokerage division following a decline in sales of nontraded real estate investment trusts and allegations of fraud. The shutdown will result in the layoff of roughly 150 employees. Another 50, elsewhere in the company, will also lose their jobs.

The company was founded by former real estate mogul Nicholas Schorsch, who remains a principal shareholder. The wholesaling brokerage division, Realty Capital Securities (“RCS”), was the centerpiece of his nontraded REIT empire, which at its peak raised hundreds of millions of dollars a month in equity from mom-and-pop investors who bought Schorsch’s REITs.

RCS will close in March. In addition to that announcement, RCAP stated that the division had come to a $3 million settlement with the Massachusetts security division, which had charged RCS with fraudulently gathering proxy votes to support real estate deals sponsored by Schorsch’s AR Capital, which managed Schorsch’s REITs.

“RCS is pleased to confirm it has reached a mutually acceptable resolution with the Massachusetts Securities Division regarding the division’s administrative complaint in connection with [RCS’] shareholder proxy solicitation process,” wrote RCAP spokesman Andy Backman.

RCAP’s announcement that RCS will close also signals the end of the previously announced acquisition of the division by Apollo Global Management. Apollo stated it intended to buy RCS for $25 million as a way to break into the distribution of its alternative investments into the retail market. A few days before Massachusetts filed its complaint against Realty Capital Securities, Apollo said it was willing to pay $6 million for the division. Now the unit will no longer exist.

 

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