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Portfolio > Alternative Investments > Real Estate

RCS Capital Says Some Brokers Lifting Product Suspensions

By Brian Louis, Bloomberg

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RCS Capital Corp. (RCAP) said some brokers have lifted suspensions on investment products it sells following accounting errors at American Realty Capital Properties Inc.

“We anticipate most of the suspended RCS products will be reinstated by the year end,” Chief Executive Officer Michael Weil said on the company’s earnings conference call today. “Several broker dealers have already lifted suspensions that have been put in place.”

RCS shares have fallen more than 40 percent since the accounting mistakes were disclosed two weeks ago, partly because of concern of damage to its business selling nontraded real estate investment trusts sponsored by AR Capital LLC. That company was created by Nicholas Schorsch, RCS’s chairman and biggest shareholder, and chairman of American Realty (ARCP) Capital as well. Brokerage firms including LPL Financial Holdings Inc. have said they were suspending sales of some products tied to the New York-based companies.

RCS fell 1.4 percent to $11.43 at 3:18 p.m. New York time, paring a loss of as much as 23 percent after its earnings trailed analyst estimates.

RCS, which has sought to distance itself from American Realty Capital, said today the board’s audit committee and management team are confident in its reported financial results after a review by an independent external counsel and forensic accounting firm.

Merger Lawsuit

RCS last week ended a deal with the REIT to buy Cole Capital, a private-capital management business. American Realty, the biggest U.S. owner of single-tenant buildings, sued RCS on Nov. 11 over the termination.

“We remain confident in our legal position regarding the termination and we’ll provide updates as required in our public filings,” Weil said on the call.

The acquisition of Cole was part of RCS’s growth plan, said Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Virginia.

“Now that that deal is in jeopardy, it’s not too surprising that the stock has been hit as hard as it has,” he said in a telephone interview.

Weil said RCS has been working with officials at AR Capital to review the financial controls and processes of their products that the broker-dealer sells. The review concluded that those companies will file their quarterly reports with regulators tomorrow with no issues or delays, Weil said.

Schorsch beneficially owns about 40 percent of RCS’s Class A common stock and, through his beneficial ownership of its Class B common stock, has majority voting control of the company, according to the American Realty Capital complaint.

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