Judge Approves $31M Class Action Securities Settlement Over RCS Capital Shares

In New York, a federal judge has approved a $31M shareholder fraud settlement reached in the class action securities case filed by investors that purchased stock in former broker-dealer RCS Capital. The plaintiffs, including lead plaintiffs the City of Providence, Rhode Island and the Oklahoma Police Pension Fund, had sued the brokerage firm, its head Nicholas Schorsch, and other ex-executives in 2014 claiming that that RCAP and the other defendants misled investors with “false and misleading statements and omissions” about RCAP’s business prospects.

The investors contend that they purchased RCS Capital stock at prices that were artificially inflated because of these statements. They are claiming massive shareholder losses.

RCAP, once controlled by Schorsch and others, was a privately held brokerage firm that wholesaled American Reality Capital nontraded REITs. Schorsch also owned ARC, which set up and managed the real-estate investment trusts.

RCAP would sell the REITs through brokerage firms that had adviser and retail reps, including independent brokerage firms such as Ameriprise Financial Services (AMP) and LPL Financial (LPLA).

By 2012, RCAP was a leader in the nontraded real estate investment trust industry. Even after the market failed in 2007, it continued to be a favorite of advisors for the healthy commissions they could make. Some of them invested in RCAP themselves, including brokers from Cetera Financial Group after RCAP acquired the latter in 2014. RCAP also purchased Investors Capital Corp. and Summit Financial Services.

Unfortunately, the disclosure of a $23M accounting error that was allowed to stay unfixed by American Realty Capital Properties Inc. (ARCP), another Schorsch-Run REIT, put a stop to ARCP REIT sales. RCAP was forced to file for bankruptcy protection in 2016.

Schorsch no longer owns RCAP. Ex-ARCP CFO Brian Block was found guilty of criminal fraud earlier this year. He will receive his sentence shortly.

However, as InvestmentNews notes, just because this class action settlement has been reached doesn’t mean qualifying investors, which include those who purchased common stock between 2/12/2014 and 12/18/2014, will opt to be included. RCAP investors are expected to get “pennies on the dollar” with this resolution. There are institutional investors that are likely to file their own individual lawsuits.

REIT Fraud Lawyers
Our institutional investor fraud law firm works with high net individual investors and institutional clients. Contact The SSEK Partners Group and ask to speak with one of our nontraded REIT fraud lawyers today.

Painful end for advisers who bought RCAP shares, InvestmentNews, October 5, 2017

American Realty Capital Properties Inc Down After Accounting Errors, ValueWalk, October 29, 2014

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Securities Fraud: Ex-American Reality Capital Properties CFO is On Trial, Abu Dhabi Investor’s Lawsuit Against Citibank is Revived, and Drivers File Class Action Case Against Juno, Institutional Investor Securities Blog, June 20, 2017

Investors File Nontraded REIT Fraud Lawsuit Accusing Nicholas Schorsch And Others of Stealing from RCAP, Institutional Investor Securities Blog, March 10, 2017

Puerto Rico Bond Fraud Cases Name Former Morgan Stanley Broker Angel Aquino-Velez, Stockbroker Fraud Blog, October 2, 2017