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June 22, 2016 at 10:38 AM
Massachusetts regulators imposed fines of $238,000 on seven broker-dealers in connection with unauthorized proxy votes tied to an American Realty Capital investment program.
The sanctions, announced Wednesday, came about six months after Secretary of the Commonwealth William Galvin fined Realty Capital Securities $3 million over the program’s fake proxy votes and RCS agreed to exit the securities business.
The fines, cease-and-desist order, censure and agreement to change supervisory policies and procedures tied to proxy voting involved Voya Financial Advisors, FMN Capital, Invest Financial, Newbridge Securities, Pariter Securities, Platinum Wealth Partners and TKG Financial.
The state’s investigation of American Realty Capital and related entities began in 2014, when American Realty Capital Properties disclosed that it had overstated its adjusted funds from operations by $23 million; soon afterward, Nicholas S. Schorsch, the company’s founder and chairman, resigned.
According to Galvin’s office, some registered agents of the seven broker-dealers submitted unauthorized proxy votes for clients with interests in American Realty Capital investment programs. “The proxy authorization forms were each identical and were prepared for the firms to submit by Realty Capital Securities,” the office explained in a press release.
“My office … uncovered how RCS’ own employees fabricated numerous shareholder proxy votes, but in these cases they were assisted by other financial service firms,” Galvin said in a statement. “A registered firm that fails to have reasonable compliance procedures in place to protect their clients’ voting rights creates a breeding ground to allow this to happen. That will not be tolerated in the Commonwealth.”
The state’s final orders concern votes taken in 2015 by American Realty Capital Trust V, American Realty Capital Healthcare Trust II and Business Development Corp. of America (or BDCA), all of which were investment programs sponsored by American Realty Capital.
“The right to vote is a fundamental right for a shareholder,” added Galvin. “It is the shareholder’s voice and is the only means to prevent a change in corporate structure that could be detrimental to their interests.”
Last year, Galvin’s office shared an RCS email to employees that read: “We need each and every one of you regardless of excuse and circumstance to focus on this all day today … this … is for your own personal well-being … [p]lease don’t put me in a position where I’m asking you why you are not working on Proxy.”
Furthermore, regulators said an RCS employee told them “if they did not participate in proxies, they would get a call from [RCS Chairman and American Realty Capital President & COO] Michael Weil and would risk termination”
The complaint also alleges that BDCA paid Realty Capital Securities $375,000 to solicit proxy votes “notwithstanding the inherent conflict with the brokerage firm’s vested interest in reaching an affirmative vote.”
The case in Massachusetts came about from an RCS employee who explained how RCS employees pretended to be shareholders and cast proxy votes in favor of management proposals.
