Nicholas Schorsch resigns from RCAP, boards of AR Capital affiliates

Selasa, 30 Desember 2014

Beranda » » Nicholas Schorsch resigns from RCAP, boards of AR Capital affiliates

Nicholas Schorsch resigns from RCAP, boards of AR Capital affiliates

New chairman Auerbach says change allows company to simplify governance, minimize 'perceived' conflicts, cut complexity

Dec 30, 2014 @ 11:13 am

By Bruce Kelly

+ Zoom

(Bloomberg News)

Two months after an accounting scandal rocked his REIT empire, Nicholas Schorsch, architect of a $40 billion brokerage and real estate investment trust empire, has resigned from the boards of public companies he once controlled.

Most notably, RCS Capital Corp., known by its ticker RCAP, said Tuesday said that Mr. Schorsch had resigned as executive chairman and gave up his seat on the board of directors. His partner, Bill Kahane, also resigned from the board of RCAP. In addition, Mr. Schorsch resigned as chairman and CEO of a publicly traded REIT, New York REIT Inc., and from the boards of 11 nontraded REITs and other direct investment programs sponsored by AR Capital, formerly known as American Realty Capital or ARC.

Replacing Mr. Schorsch as RCAP chairman is Mark Auerbach, who has been the lead independent director of the firm since last February.

(More: Nicholas Schorsch's REIT empire is under siege)

Mr. Schorsch's resignation from RCAP means that he has lost control of the second of the three pillars of the empire that he controlled until recently. Two weeks ago, he resigned as chairman of American Realty Capital Properties Inc., known as ARCP. He remains chairman and CEO of AR Capital

"This important transition allows us to simplify our governance structure, reduce complexity and minimize perceived conflicts of interest among related parties and affiliates,” Mr. Auerbach said in a statement from RCAP. “The board and I look forward to continuing to work closely with [CEO] Mike Weil and the entire RCS Capital management team as we execute RCS Capital's strategy for growing revenues, expanding profitability, maintaining corporate governance best practices and enhancing overall shareholder value.”

In a statement released by AR Capital, Mr. Schorsch said: “Because of the solid, highly skilled management teams which we have built, this is the right time to make these changes.”

Together, Mr. Schorsch and Mr. Kahane remain the largest shareholders of RCAP.

Mr. Schorsch has been under siege since the end of October, when it was announced that ARCP, the giant listed REIT he controlled, had intentionally not corrected a $23 million accounting error in the first half of this year. Two executives, including one of his longtime partners, Brian Block, resigned.

At first, Mr. Schorsch downplayed the accounting error, reassuring broker-dealers that the accounting issues at ARCP were isolated. But a surge of events undermined the status of the freewheeling REIT czar beloved by many financial advisers for quick liquidity events of nontraded REITs sponsored by AR Capital, a private company.

The shares of ARCP and RCAP plummeted on the news. Broker-dealers and clearing firms in November suspended sales of AR Capital products, eroding revenues for RCAP from wholesaling fees. Then, just two weeks ago, one of the executives who resigned from ARCP, Lisa McAlister, filed a defamation lawsuit that alleged that Mr. Schorsch ordered her and other executives to change quarterly financial results.

One analyst was sanguine about the changes at RCAP.

“We view the announcement positively as it further divorces the implicit overhang on RCAP from the [legacy] association with ARCP — as there is no economic relationship between the firms,” wrote William Katz, an analyst with Citigroup Global Markets Inc.

“First, the changes to the board further increase the number of independent directors and reduces the complexity and perceived conflicts of interest among related parties,” Mr. Katz wrote. “Second, it increases the path to simplifying the franchise which should expand the [price/earnings] multiple. Third, RCAP is moving relatively quickly to address investor concerns and we expect further action to come with the external management structure likely to be reviewed over time.”

In late morning trading in New York Tuesday, RCAP shares were up 65 cents, or 5.75%, at $11.95, well off their 52-week low of $8.94.

Comments