PhillyDeals: For Schorsch, a tale of two companies gone awry

Two companies chaired by Nicholas S. Schorsch, a Jenkintown industrial heir turned New York-based real estate mogul, are fighting each other over a $700 million business deal that threatens to unravel after a financial reporting scandal.

RCS Capital Corp., Schorsch's investment bank, posted a statement early Monday that "it has terminated" its month-old agreement to buy Cole Capital Partners L.L.C., an investment sales group, from American Realty Capital Properties Inc., Schorsch's publicly traded real estate company and one of the nation's biggest commercial landlords.

American Realty, in a statement later Monday, insisted the deal was still on: "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."

The dispute follows the sudden departure last week of American Realty chief financial officer Brian Block and chief accounting officer Lisa McAlister after the board's audit committee found errors in their public financial reports. The board concluded they intentionally failed to correct those reports.

American Realty won't comment on a report, first posted by Reuters, that federal investigators have launched a criminal probe.

How is this struggle possible if one man heads the boards of both companies?

American Realty's independent directors - led by Leslie D. Michelson, founder of Los Angeles-based Private Health Management, and including former Pennsylvania Gov. Ed Rendell - are hard at work looking for ways to force RCS to complete the deal. The board said in a statement that the deal was "in the best interests" of American Realty and its investors. American Realty's largest investor is the Malvern-based Vanguard Group, according to company records.

Presumably, RCS's board is attempting to do the same for its investors. RCS's largest investor is Schorsch.

Which side is Schorsch really on? Is he trying to protect his large RCS investment at the expense of Vanguard and other American Realty shareholders?

And what does this mean for owners of the dozens of funds that Schorsch's companies have helped sell to small investors?

Schorsch spokesman Anthony DeFazio said his boss was unavailable for comment.

Both companies' shares continued to fall Monday. American Realty shares slipped 11 percent to $7.85, down almost half from their highs this year. RCS shares fell 17 percent to $13.69, one-third what they were worth April 1.

Some firms, employing more than 5,000 investment brokers, stopped selling some American Realty funds late last week, InvestmentNews reported.

UniTek Global Services Inc., a Blue Bell company that employs 3,200 people installing DirecTV, AT&T, Comcast, and other systems, says it has filed for Chapter 11 reorganization in bankruptcy court in Wilmington, and will stay in business as investors and other creditors take control.

UniTek claims more than $400 million in yearly sales, but has reported losses each year since 2008. Chief executive Rocky Romanella told investors a year ago that the company needed to diversify.

Local cable installation contractors have gone out of business as the industry has consolidated to a few big players, according to a lawsuit filed against Comcast by Pennsylvania-based Cable Line Inc. and McLaughlin Communications Inc. this year.