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From Securities Regulation Daily, November 12, 2015

Massachusetts charges Realty Capital Securities with faking proxy votes

By John M. Jascob, J.D., LL.M.

Massachusetts Secretary of the Commonwealth William Galvin has charged Realty Capital Securities, LLC with fraudulently soliciting and casting proxy votes in order to push through real estate deals involving an investment fund for which it acted as a wholesale broker-dealer. In an administrative complaint, Galvin’s office claims that Realty Capital employees masqueraded as shareholders in order to fabricate votes in favor of management proposals on amending the fund’s advisory agreement. Galvin is seeking to revoke the firm’s broker-dealer license and impose an administrative fine for violations of the anti-fraud provisions of the Massachusetts securities laws (In the Matter of Realty Capital Securities, LLC, November 12, 2015).

Impersonating shareholders. Based in Boston, Realty Capital acts as the wholesale broker-dealer for investment funds sponsored by American Realty Capital (AR Capital). According to the complaint, Massachusetts enforcement attorneys have identified at least two fabricated shareholder proxy votes involving Business Development Corporation of America (BDCA), a non-traded investment fund sponsored by AR Capital.

In the first incident, a registered representative of Realty Capital placed a telephone call to a proxy solicitation firm, claiming that he had a BDCA shareholder on the telephone ready to vote his shares for BDCA’s 2015 annual meeting. Instead of conferencing in the shareholder, the representative conferenced in another Realty Capital representative, who used a contrived accent to impersonate the shareholder and cast a fraudulent vote in favor of BDCA’s management. In the second incident, Realty Capital employees used a similar procedure to fabricate votes for BDCA’s 2015 special meeting of stockholders.

Steamroller strategy. According to information obtained by the Massachusetts Enforcement Section, Realty Capital employees replicated these fraudulent actions over numerous proxy votes. The complaint claims that employees faced intense pressure from the broker-dealer’s management, while referencing testimony that an “unofficial strategy” of employees was to “steamroll” shareholders into voting in favor of management at all costs. The complaint also asserts that employees faced thinly-veiled threats regarding their continued employment or even their well-being if they failed to obtain sufficient votes.

The proceeding is No. E-2015-0034.

MainStory: TopStory Enforcement FraudManipulation Proxies MassachusettsNews

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