Three more firms have decided to suspend trades of nontraded real estate investment trusts managed and backed by companies under Nicholas Schorsch’s control. The suspension comes following news of a $23 million accounting error involving American Realty Capital Properties Inc. (ARCP) which is Schorsch’s publicly treated REIT. ARCP owns Cole Capital Advisors Inc. and Cole Capital Partners.
The mistake was disclosed at the end of the month. ARCP revealed that the error occurred during the first half of the year and then was purposely left uncorrected. The latest firms to announce suspensions are Charles Schwab (SCHW), Pershing and Fidelity.
Schwab said it would suspend sales of Cole and American Realty Capital nontraded real estate investment trusts. Fidelity noted that it was going to stop facilitating subscriptions for certain Cole and Realty Capital Securities-affiliated nontraded REITs. Pershing told broker-dealers that use its clearing services that it would stop facilitating purchases of Cole Capital-sponsored investment products. More than thirty of the leading independent brokerage firms have clearing deals with Pershing.
Other firms that have suspended trades of Schorsch-affiliated nontraded real estate investment trusts include AIG Advisor Group, LPL Financial (LPLA), Securities America, National Planning Holding, and Schorsch’s own broker-dealer network, Cetera Financial Group.
More trouble also appears to be brewing in the Schorsch empire. ARCP just announced that it is suing RCS Capital Corp. for pulling out of a deal earlier this month. Schorsch owns both of them.
RCS Capital had said it would buy broker-dealer Cole Capital Advisers for $700 million but cancelled after ARCP disclosed the accounting error. Meantime, securities lawyers are looking into the possibility that members of the RCS Capital Board of directors breached their fiduciary obligations to shareholders regarding corporate reorganization efforts.
ARCP Files Suit Against RCS Cap Over Nixed Deal, The Wall Street Journal, November 12, 2014
Fidelity, Pershing, Schwab join suspension of Schorsch REITs, November 12, 2014
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