FINRA Disciplines Three Realty Capital Ex-Salesmen in Proxy Fraud
November 7, 2017 | James Sprow | Blue Vault
According to an article by Bruce Kelly in InvestmentNews on November 7, the Financial Industry Regulatory Authority Inc. (“FINRA”) on Monday, November 6, barred two former Realty Capital Securities salesmen involved in the 2015 proxy fraud that led to the eventual closing of that firm, and last week suspended a third former Realty Capital salesman for two years.
Realty Capital (“RCAP”) was the wholesaling broker-dealer controlled by former nontraded real estate investment sponsor American Realty Capital (“ARC”) and its Chairman Nicholas Schorsch. The firm’s primary business was selling REITs managed by ARC, later AR Capital, that had the largest market share in the nontraded REIT sector following the financial crisis.
On November 12, 2015, Massachusetts’s securities regulator accused Realty Capital Securities of faking proxy votes for a September special meeting of shareholders in one of AR Capital’s sponsored investment vehicles. In an administrative complaint, Massachusetts Secretary of the Commonwealth William Galvin said agents of Realty Capital Securities impersonated shareholders and cast fake votes for investment programs sponsored by ARC. Less than a month later, RCAP said it was shutting down Realty Capital Securities in the wake of declining sales of nontraded real estate investment trusts and Mr. Galvin’s allegations of fraud. Realty Capital said it reached a $3 million settlement with Massachusetts relating to the fraud allegations when it closed.
Christopher Michael Tenaglia worked for Realty Capital from August 2010 until October 2015, and was a wholesaler in the firm’s Boston office, according to the FINRA settlement.
Eric Ovesen also worked in Boston for Realty Capital from November 2013 until November 2015, and worked as a registered representative, according to his settlement.
Also, on Friday, FINRA suspended for two years another former Realty Capital sales agent, Conor Knox Hobert, over the proxy fraud issue. Mr. Hobert worked at Realty Capital from August 2014 until November 2015 and participated in the proxy fraud, according to the FINRA order.
Mr. Hobert broke industry rules when he impersonated three shareholders and voted their shares without their knowledge and consent, according to FINRA.
“Between May and September of 2015, at the direction of his supervisor, Hobert impersonated three shareholders and cast false proxy votes on their behalf in connection with the annual shareholder meetings for various funds,” according to the settlement.
“Also at the direction of his supervisor, Hobert participated on several telephone calls where his supervisor impersonated two financial advisers or shareholders to cast at least 35 false proxy votes in connection with the annual shareholder meetings for various funds.”
“Proxy season was a high-pressure environment, and [Realty Capital] employees were encouraged to work long hours and make no less than 200 calls to shareholders per day,” according to FINRA. “At one point [Realty Capital] management was monitoring the progress of the proxy solicitation calls every 30 minutes.”
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