Issues tied to some nontraded REITs have come into focus.

Massachusetts regulators are investigating Realty Capital Securities, a spokesperson said late Friday.

The news caps a second week of tough times for Nicholas Schorsch and the alternative-investment interests that he runs.

“I can confirm that we have an investigation of Realty Capital Securities [underway], which includes its sales of nontraded REITs,” said Brian McNiff, who works for the Secretary of the Commonwealth of Massachusetts William Galvin, in an interview with ThinkAdvisor.

Realty Capital Securities, of which Schorsch is executive chairman, conducts the wholesaling work of RCS Capital (RCAP), which also includes several broker-dealers in its Cetera Financial unit.

Last week, American Realty Capital Properties (ARCP), announced accounting errors that totaled nearly $23 million. Schorsch is ARCP’s chairman.

On Thursday, some American Realty Capital (or AR Capital) REITs updated their filings with the Securities and Exchange Commission. Like RCAP did earlier this week, they emphasized their corporate independence from ARCP.  

“Since the announcement on October 29, 2014, by American Realty Capital Properties Inc., or ARCP, a publicly traded REIT previously sponsored by the parent of our sponsor, relating to certain ARCP accounting misstatements, our sponsor and our dealer manager have engaged in continuous dialogue with soliciting dealers through which our offering is distributed to clarify that ARCP is a separate publicly listed company and is not affiliated with us, and we and ARCP have independent accounting teams and no overlapping accounting and control systems,” reads an amendment to an Oct. 20 prospectus filed by AR Capital Retail Centers of America II REIT.

“Our sponsor and dealer manager believe that the independent broker-dealer community remains supportive of direct investment products sponsored by our sponsor, including our offering, and are providing soliciting dealers with requested information in order to maintain distribution relationships,” the document continued.

Further Fallout

Multiple independent broker-dealers, including Cetera, have suspended sales of Cole and AR Capital nontraded REITs, including LPL Financial (LPLA), Advisor Group, National Planning Holdings, Cambridge Investment Research and Securities America.

“The fact that RCAP and ARCP are distinct corporate entities with separate boards and the like is technically true, but the scandal has tarnished the entire Schorsch brand. In other words, although these are two separate corporate entities, their brands are linked in terms of their public image,” said executive-search consultant Mark Elzweig, earlier this week, after RCAP issued a statement similar to that in the AR Capital REIT’s amended prospectus.

“This is unfortunate, considering that ARCP had built up a very strong brand and strong relationships with advisors who valued what the company brought to the nontraded REIT niche,” explained Elzweig.

RCS Capital’s broker-dealer operations are currently led by Larry Roth, the former head of the Advisor Group. Roth switched firms about a year ago and initially served as CEO of Realty Capital Securities.

Several weeks ago, however, Roth became head of Cetera Financial Group; Cetera has been expanding through acquisitions of IBDs and now has some 9,700 affiliated reps.

With Roth’s move to Cetera, Bill Dwyer, the former president of LPL Financial’s Independent Advisor Services unit, came out of retirement to take the helm of Realty Capital Securities.

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