RCS Capital continues to implode.
The beleaguered holding company, which owns Cetera Financial Group, one of the industry's largest independent broker-dealers, is shutting down its wholesale distribution businesses, Realty Capital Securities.
RCS also announced a $3 million settlement with the Massachusetts Securities Division. Under hard-charging Massachusetts Secretary of the Commonwealth William Galvin, Realty Capital was charged with fraudulently amassing proxy votes to support real estate deals sponsored by AR Capital, a privately held real estate management company owned by RCS founder Nicholas Schorsch and his partner William Kahane.
Realty Capital Securities was also investigated by Galvin last year after another company controlled at the time by Schorsch, American Realty Capital Properties, now Vereit, revealed it intentionally left uncorrected a $23 million accounting misstatement in the first half of 2014.
RCS said it has also decided to "voluntarily withdraw its broker-dealer license in Massachusetts and all other state and federal jurisdictions." The move is specific to the company's wholesale distribution business and is not related to the Cetera business, an RCS spokesman clarified.
'STRATEGIC REPOSITIONING'
RCS will begin shutting down Realty Capital immediately, and expects the process to be completed by the end of the first quarter 2016. Around 150 Realty Capital employees as well as an additional 50 other employees throughout the company will be laid off.
The company, which is also known as RCAP, described the latest developments in a statement as "a series of actions designed to further accelerate its strategic repositioning to focus on the independent retail advice business, Cetera Financial Group, rationalize its capital structure, increase financial flexibility and position the company for long-term growth."
Although Cetera is reportedly for sale, RCS Non-Executive Chairman Mark Auerbach said in a statement that the company's actions "represent the continued execution of our previously announced strategic plan to reposition the company as a pure-play, Cetera-only focused retail advice business."
'EXTREMELY DIFFICULT' MOVES
Auerbach called the latest moves "extremely difficult but necessary." He added that RCS' recently announced capital raise, lender modifications and other initiatives "will enable us to further rationalize our business while we continue to work with Lazard to explore options to raise additional capital and complete further asset divestitures."
Last month RCS named industry veteran and Cetera head Larry Roth as chief executive officer as Michael Weil stepped down from the post but remained on the board of directors.
RCS also posted a $266.5 million third quarter net income loss from continuing operations. Its stock price, which now trades at well under $1, has lost over 90% of its value over the past year.
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