Schwab, Fidelity Stop Sales of Schorsch-Led Nontraded REITs

Late Friday, Massachusetts regulators said they were investigating Realty Capital Securities.

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

In late October, American Realty Capital Properties (ARCP) announced accounting errors that totaled nearly $23 million. Schorsch is ARCP’s chairman. Following that development, RCAP called off plans to purchase part of Cole from its sister organization.

Multiple independent broker-dealers, including Cetera Financial, 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 last week.  “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 non-traded REIT niche.”