Massachusetts State Authorities Investigate Realty Capital Securities (RCS)

According to Investment News, William Galvin, The Massachusetts Secretary of the Commonwealth, has charged Boston-based Realty Capital Securities (RCS) with proxy vote fraud. The investigation also included independent broker dealers who sold RCS alternative investments to customers. Proxy voting is a form of voting where members of the decision making body delegate their voting power to other members of the same body to vote in their absence, and/or to select additional representatives. RCS allegedly used agents to impersonate stockholders to vote on matters of corporate governance.

RCS is part of a network of real estate companies owned by Nicholas Schorsch (Schorsch) and William Kahane (Kahane). According to the complaint, filed November 12, 2015, RCS employees contacted other broker-dealer agents and discussed solicitation of shareholder proxy votes in Business Development Corp. of America, a New York Company. RCS employees allegedly sent broker-dealer authority letters to broker-dealer agents without verifying if the broker-dealer agents had authority to vote client shares.

The fraudulent proxy votes allegedly influenced votes for investment programs sponsored by AR Capital, which is owned by Schorsch and Kahane. According to the Boston Globe: “One of the proxy votes allegedly affected by fraud was necessary for a proposed $378 million deal involving Schorch’s companies.” Another vote alleged to have been influenced by improper proxy voting had the potential to give Schorsch and Kahane more control over Business Development Corp. of America, and deprive average investors of their rights.

In the complaint Galvin and Massachusetts securities regulators ask for RCS to be stripped of its broker-dealer license and to pay a fine. As of December 2, 2015, RCS shut down its operations nationwide and has been fined $3 million by the Massachusetts securities regulators.

RCS specialized in alternative investments such as non-traded REITs and business-development companies. Non-traded REITs carry greater risk than more traditional investments such as stocks and bonds. Because of the greater risk attached to these investments, they are better suited for sophisticated and institutional investors. Broker-dealers have the duty to conduct proper due diligence in order to determine if an investment is suitable for a customer.

If you believe you have been the victim of stockbroker misconduct, you may wish to consult an attorney to find out more about your legal rights and options. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.