One year after pulling products associated with entities founded by Nicholas Schorsch from their shelves for several weeks, both Charles Schwab and Fidelity are restricting products tainted by a second series of troubles with the same alternative investment groups.

“Effective Nov. 19, Fidelity [Clearing and Custody operations] will no longer facilitate new purchase subscriptions for certain Realty Capital Securities (RCS) distributed REIT and BDC products,” according to Fidelity Institutional spokeswoman Nicole Abbott, in a statement.

Schwab says that as of tomorrow it “is suspending purchases of interests in nonlisted American Realty Capital products. Existing positions in these funds will continue to be serviced and maintained by Schwab in accordance with our normal servicing standards,” explained spokeswoman Susan Forman, in a statement.

TD Ameritrade Institutional says it is “monitoring developments.” 

(RCS Capital shares traded near $0.42 late Thursday.)

On Monday, AR Capital, one of several companies linked to both RCS Capital and American Realty Capital Properties (now VEREIT), said it would not issue new investment programs next year nor pursue sales of existing products to new investors starting Jan. 1.

“The proposed and pending regulatory changes suggested by the Department of Labor fiduciary standard as well as the valuation measures prescribed by FINRA’s 15-02 directive pertaining to the alternative investment industry remain largely opaque in terms of their implications and consequences for the alternative investment industry,” said William Kahane, founding partner of AR Capital, in a statement. “Until there is greater clarity, we have decided to sit this one out.”

Products sold by AR Capital — Business Development Corp. of America II, ARC Healthcare Trust III, New York City REIT II, ARC Hospitality Trust and ARC Global Trust II — have about $19 billion in assets.

Embattled RCS Capital (RCAP) reported its third-quarter results late Monday and also said its board elected Cetera head Larry Roth as CEO. Former CEO Michael Weil gave up the role but remains on the board of the company, which owns the Cetera Financial Group of independent broker-dealers.

RCAP’s wholesale distribution operations, which have been rocked by a number of issues over the past 12 months, raised $868 million of equity capital in the third quarter vs. $2.3 billion a year ago.

Overall, the company had sales of $589.6 million vs. $511.8 million a year ago. However, losses grew dramatically – by roughly 830% – to -$307 million, or -$3.83 a share, vs. -$37 million, or -$0.59, in Q3’14.

The adjusted profits for its continuing operations were $2.6 million, or $0.03 per share, in Q3’15 vs. $32.1 million, or $0.51, a year ago.

Revenue produced by the firm’s nearly 9,500 independent reps was $503.5 million, “essentially flat compared to the year-ago quarter (which did not include [two recently acquired broker-dealers] VSR and Girard) and down 4.8% compared to the prior quarter,” according to the company.

“We believe Cetera Financial Group remains a strong franchise, and we are confident in our core business as we continue to see opportunities to gain market share and capitalize on the growing need for independent, high-quality retail advice,” said Roth, who is also CEO of Cetera Financial Group. “We have had continued success recruiting and retaining advisors as a result of the size, scale and resources we offer through our platform, and we remain optimistic on recruiting and advisor retention for the balance of 2015 as well as the coming year.”

The firm’s 9,476 independent financial advisors have about $225 billion in assets under administration and $45 million in assets under management, up 6% and 13% respectively from last year.

In Q3, the firm recruited 254 financial advisors with about $23.6 million in trailing 12-month gross fees and commissions. The net recruited production level, which includes the fees and commissions of departing reps, was $6.7 million vs. $21.5 million in the prior quarter.

The production level of advisors recruited in the third quarter was 40% higher than that of the advisors leaving the platform, according to Cetera. Of the unit’s $500-plus million in Q3 sales, nearly 65% was recurring, while 33% was fee-based revenues vs. 63% and 31% in the prior quarter, respectively.

Legal Woes

The future of RCS Capital’s operations remains unclear. Last week, Massachusetts regulators charged RCS Capital with fraudulent proxy voting and are seeking to revoke the firm’s broker-dealer registration in the state.

In addition, RCS Capital says it recently received a notice from the New York Stock Exchange for noncompliance with the $1 minimum bid price rule.

Massachusetts’ secretary of the commonwealth, William Galvin, says RCAP fraudulently cast shareholder proxy votes on investment programs sponsored by American Realty Capital at the June annual meeting of the Business Development Corp. of America (BDCA), an investment sponsored by AR Capital, and at a special September meeting of BDCA.

The September vote was required as part of a proposed deal with Apollo Global Management to buy real estate assets from Nicholas Schorsch, according to Galvin’s office; this deal has since been canceled, though a separate arrangement for Apollo to buy Realty Capital Securities is moving ahead at $6 million, “a considerably reduced asking price,” the regulators say.

Schorsch was formerly the chairman and chief operating officer of BDCA.

The complaint also alleges that Realty Capital Corp. was paid $375,000 by BDCA to solicit proxy votes “notwithstanding the inherent conflict with the brokerage firm’s vested interest in reaching an affirmative vote.”

These developments followed the debacle of October 2014, when American Realty Capital Properties (now VEREIT) reported $23 million of accounting errors. After that news broke, many broker-dealers stopped selling nontraded REITs and other products associated with American Realty Capital Properties, AR Capital and RCAP, ventures founded or led in the past by real-estate mogul Schorsch.

Earlier this month, Hatteras Funds said it was buying its business back from RCAP in order to re-establish itself as an employee-owned alternative investment firm.

In a memo to financial institution senior management, program managers and advisors obtained by REIT Zone, Cetera Financial Institutions President & CEO Catherine Bonneau wrote: “Due to recent news about events at AR Capital and RC Securities, we are temporarily suspending sales of all products sponsored by AR Capital effective immediately. This temporary suspension should not be construed as an indication that there are fundamental issues with products sponsored by AR Capital. Rather, until we learn more, we believe it prudent to take this action. Sales in the products listed will remain suspended until further notice: (1) American Realty Capital Global Trust II, (2) American Realty Capital Healthcare Trust III, (3) American Realty Capital Hospitality Trust, (4) Realty Finance Trust, (5) Business Development Corporation of America – II, (6) American Real Estate Income Fund – AREIX and (7) AR Mutual Funds.”

She added, “Any subscription agreements currently in process for any of the listed products will be promptly returned.”

Through the end of October, AR Capital had nontraded REIT sales of $2.2 billion, which represents a nearly 27% market share and is “down sharply from last year,” according to REIT Zone; in the year-ago period, AR Capital had raised $5.8 billion, earning it a 43% market share, says REIT Zone, citing data obtained from Robert A. Stanger & Co.

Cetera executives would not comment specifically on the matter. A spokesperson, though, said: “Consistent with Cetera Financial Group’s longstanding processes, we conduct ongoing due diligence of all products as part of our broader efforts to work with providers of investment solutions that meet the highest possible standards within our industry.”

An industry expert familiar with the company, who wished to remain anonymous, believes this step has likely been taken. “When there were accounting issues [tied to AR Capital] last year, Cetera did suspend these sales,” he explained. “It’s important for Cetera to demonstrate its independence … and management wants to do the right thing in a tough situation.”

— Check out AR Capital to Stop New Issues, Cetera Suspends Related Product Sales on ThinkAdvisor.