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RCS Capital Plays Defense on ARCP Issues

RCS Capital Plays Defense on ARCP Issues

The continued erosion in share price of Nicholas Schorsch’s RCS Capital Corp. prompted the company on Wednesday to distance itself from sister company American Realty Capital Properties and its reported $23 million accounting error.

“RCAP reiterates that it and ARCP are two separate and independent public corporations,” the broker-dealer company said in a statement Tuesday, noting it had separate management team, separate and distinct boards of directors, and perhaps most importantly, separate and distinct accounting functions.

Schorsch, who serves as executive chairman of RCS Capital and sits on the board of directors for American Realty Capital, stressed the point further  during a panel discussion at Schwab IMPACT Wednesday that ACRP was not part of RCS Capital. The names may sound similar, but they’re spelled differently, he joked, adding the similar tickers can make you “go nuts.”

He said RCS Capital’s stock “has been beaten up lately” (RCAP shares plunged 20.3 percent on Tuesday amid news major broker/dealers were suspending sales of Schorsch companies' products) because of the ARCP matters, but noted the stock was rebounding. It was up by 11 percent as of Wednesday morning.

To protect the interests of its shareholders and value of RCAP and its subsidiaries, the company said it had terminated its agreement to acquire non-traded REIT sponsor Cole Capital from ARCP.

“Since ARCP's announcement regarding its accounting misstatements, RCAP's board of directors, led by its audit committee made up of its independent directors, and its management team have taken a number of steps to ensure the continued strength and financial integrity of RCAP's wholesale distribution platform and its overall business.

At Schwab's Impact conference, Schorsch said he could not comment on the recent Cole Capital deal breakdown and that he was asked not to participate in the acquisition and not involved in the current “squabbles."

When asked at the Schwab conference for his reaction to the IBDs dropping some of this funds, Schorsch said, “they have to do their due diligence and I understand that. I'm not distraught. Some just want to see a couple of quarters of 10-Qs…that makes perfect sense.”

RCAP added in the company statement that those outside broker-dealers that have temporarily suspended sales are likely to reinstate the selling agreements. Additionally, RCAP is in discussions with its own broker/dealer and custodian network, providing information they are requesting in order to maintain distribution relationships. Within its own network, Cetera Financial Group has temporarily suspended sales of all Cole and ARCP-affiliated products.
 
“Consistent with Cetera Financial Group’s longstanding processes, we conduct ongoing due diligence of all open non-traded REITs,” Matthew Griffes, a spokesperson for Cetera Financial Group said Wednesday.

During the panel discussion, Schorsch noted that alternatives account for 8 percent of RCAP sales, but added the idea is not to distribute alternatives through his advisors.

“The reaction from us and our investors is one of confidence,” Schorsch said of RSC Capital.

As for ARCP, Schorsch said on the panel that there are seven more weeks of direct investigation from the auditors ahead. But he emphasized that the account error will not impact total real estate revenues.

“Now we start the healing process,” he added, saying that ARCP’s stock also is rebounding a little today. But it’s going to take time, he added.

 

— Megan Leonhardt, Diana Britton and David Armstrong contributed to this report. 

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