SCHORSCH’S RCS CAPITAL JUMPS AFTER SETTLING ARCP LAWSUIT

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Date:​ Fri-05-December-2014

RCS Capital Corp. (RCAP), the investment firm that has plunged since the revelation of accounting errors at American Realty Capital Properties Inc. (ARCP), rose the most since March after settling a lawsuit with the real estate investment trust over a canceled acquisition.


RCS will pay $60 million to resolve the litigation, American Realty Capital Properties, or ARCP, said in a statement today. The New York-based companies -- who share a chairman, Nicholas Schorsch -- had been at odds after RCS last month pulled out of a roughly $700 million deal to buy ARCP’s Cole Capital unit.


The settlement helps RCS distance itself from ARCP, a publicly traded real estate company that disclosed five weeks ago that it had accounting errors that were intentionally concealed. RCS, which partly draws revenue from sales of nontraded REITs sponsored by Schorsch’s AR Capital LLC, has been working to reassure broker-dealers about its own internal controls and independence from ARCP.


“The accord helps RCS minimize any hangover from American Realty’s accounting error and litigation,” Elliott Stein and Jeffrey Langbaum, analysts with Bloomberg Intelligence, wrote in a note today. RCS is “working to lift suspensions of some of its wholesale selling agreements. Separation from American Realty could expedite this recovery.”


ARCP and RCS Capital have agreed to “terminate, unwind or otherwise discontinue all agreements” between the companies, ARCP said in its statement today. Andy Merrill, a spokesman for ARCP, declined to comment on what that may involve. An e-mail to Jonathan Keehner, an RCS spokesman, wasn’t returned.


Share Gain


RCS jumped 8.3 percent today to $10.55. The stock has fallen 47 percent since ARCP’s Oct. 29 disclosure. ARCP, the largest U.S. owner of single-tenant buildings, fell 1.2 percent today to $9.18 and has lost 26 percent since Oct. 29.


“We believe the negotiation of a fixed-cost settlement clearly outweighs the potential expense and distraction of a drawn-out litigation process,” Michael Weil, chief executive officer of RCS, said in a separate statement today. “We continue to see progress across our entire industry-leading platform, including the reinstatement of a number of selling agreements within our wholesale business.”


Schorsch is RCS’s biggest shareholder. The company has been hit hard because of its ties to AR Capital, the biggest sponsor in the $60 billion-plus industry of nontraded REITs. Those investments are marketed to individual buyers and depend heavily on the sponsor’s reputation. Cole Capital is also a sponsor of nontraded REITs.


$18 Billion


AR Capital has raised almost $18 billion in equity for its nontraded REITs and other investment products from 2008 through October of this year, according to investment bank Robert A. Stanger & Co.


Brokers including LPL Financial Holdings Inc. have halted sales of ARCP and RCS products since the accounting disclosures. RCS’s Weil said last month that some brokers have lifted suspensions and the company expected most agreements to be reinstated by the end of the year.


Lauren Hoyt-Williams, a spokeswoman for LPL in Charlotte, North Carolina, said the suspensions are still in effect for her company.


The team at ARCP selling Cole products will see the settlement as a win, said Kevin Gannon, president of Robert A. Stanger & Co., a Shrewsbury, New Jersey-based investment bank that focuses on nontraded REITs.


“It helps them set a direction of where they’re going next rather than having a fistfight, which could have gone on forever,” Gannon said.

 

Source From: BONNA REALTY GROUP ( 05-12-2014 )

 

 

 

 

 

 

 

 

 

 

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