Schorsch boards battle over $700M deal as investors dump his stocks
Rendell's board wants to force RCS to buy American Realty's Cole brokers
Two companies that control billions of dollars in investment assets -- both chaired by Nicholas S. Schorsch, the Jenkintown industrial heir turned Manhattan-based real estate mogul -- fought Monday over a $700 million brokerage deal that threatened to unravel following a financial reporting scandal at one of the companies.
RCS Capital Corp., Scorsch's investment bank, early Monday posted a statement that "it has terminated" a month-old agreement to buy real estate fund brokerage Cole Capital Partners LLC and its affiliate Cole Capital Advisers from American Realty Capital Properties Inc., Schorsch's real estate company, after American Realty said last week that chief financial officer Brian Block and chief accounting officer Lisa McAlister left the company after the board's audit committee found errors in their first-quarter financial report that they intentionally failed to correct.
No way, said American Realty in a statement later that morning: "In the middle of the night, we received a letter from RCS Capital Corporation purporting to terminate" the Cole deal, which the firms annnounced Sept. 30. "As we informed RCS orally and in writing over the weekend, RCS has no right and there is absolutely no basis for RCS to terminate the agreement. Therefore, RCS's attempt to terminate the agreement constitutes a breach of the agreement."
How is this possible -- if one man, investor Schorsch, is the head of both companies?
Because American Realty's independent directors -- led by Lead Director Leslie D. Michaelson, founder of Los Angeles-based Private Health Management, and including former Pennsylvania Gov. Ed Rendell, a friend of Schorsch -- "are evaluating all alternatives" to force RCS to complete the deal and take other action "in the best interests" of the compay's shareholders and businesses.
Which side is Schorsch on? Spokesman Anthony DeFazio said Schorsch was unavailable for comment.
Meanwhile both companies' shares continued to fall.
Reuters reported the FBI and federal prosecutors are looking into the matter, citing unmnamed sources. American Realty hasn't commented on that claim. Firms employing more than 5,000 investment brokers suspended sales of some American Realty funds late last week in the wake of the scandal, InvestmentNews reported here.