Schorsch Unit Draws State Regulator's Scrutiny

“Since the announcement on Oct. 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.

Multiple independent broker-dealers, including Cetera, have suspended sales of Cole and AR Capital nontraded REITs, including LPL Financial, Advisor Group, National Planning Holdings, Cambridge Investment Research and Securities America, as well as custodial and clearing firms such as Charles Schwab and Fidelity.

“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 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.