In the “what were they thinking” category, today we have news that the top financial regulator in Massachusetts has charged a unit of RCS Capital Corp with fraud related to shareholder proxy votes, alleging that RCS employees used fake accents to impersonate investors in making proxy votes by telephone.
A complaint filed by Massachusetts Secretary of the Commonwealth William Galvin argues this type of serious violation of securities laws deserves a significant fine and the revocation of the broker-dealer registration of Realty Capital Securities (a subsidiary of brokerage holding firm RCS Capital).
Neither Realty Capital Securities or RCS Capital returned messages from the media on Thursday.
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Mass. regulators say RCS Capital proxy vote scam likely much more extensive
The complaint against RCS filed Thursday states that the investigation identified at least two cases of fabricated proxy votes concerning Business Development Corporation of America, an investment fund sponsored by a holding company of RCS.
RCS Capital’s executive chairman, real estate investor Nicholas Schorsch, resigned late last year. Schorsch also resigned as executive chairman of American Realty Capital Partners, a real estate investment trust in December 2014. That partnership restated its financial results earlier this year when “intentional accounting errors” were brought to light.
According to the complaint, people who worked for Realty Capital “used a contrived accent” to impersonate shareholders and to cast proxy votes in favor of the fund’s management on at least two occasions, once for the annual meeting and another time at a special meeting.
The Massachusetts regulator’s office noted it had obtained audio recordings of the fraudulent votes being cast by telephone.
Of note, investigators also stated they believe the proxy voting irregularities at RCS were more widespread than the two votes mentioned in the legal filing. Employees at Realty Capital, “facing intense pressure from management, replicated this fraudulent action over numerous proxy votes,” according to the complaint.
Also of note, the case was developed from information initially provided by an employee of Realty Capital.
See the SEC filing below.