November 3, 2014 / 5:45 PM / 5 years ago

UPDATE 1-RCS Capital terminates agreement to acquire Cole Capital

(Adds details, company comments, stock prices)

By Jed Horowitz

NEW YORK, Nov 3 (Reuters) - RCS Capital Corp, the independent retail brokerage empire amassed by real estate investment trust magnate Nicholas Schorsch, withdrew its plan on Monday to buy Cole Capital from American Realty Capital Properties Inc, another Schorsch venture.

Schorsch helped found RCS Capital and American Realty and has deployed top executives between the two companies that are now at war over Cole.

American Realty Capital said it will challenge the decision, the latest in a series of fast-moving events that has battered the stocks of several companies associated with Schorsch, who is the chairman of American Realty, a publicly traded REIT.

American Realty said last Wednesday it fired its chief financial officer and chief accounting officer and will restate earnings for the first half of this year because of “intentional” accounting errors.

The Federal Bureau of Investigation is conducting a criminal investigation of American Realty, Reuters reported on Friday.

In a statement on Monday, American Realty said terminating the deal constituted a breach of agreement by RCS Capital.

In an emailed statement, RCS spokesman Andrew Backman, “RCS Capital’s board of directors determined that it is appropriate for RCAP to terminate the agreement in light of the disclosures made by ARCP.”

“By doing so, RCAP has moved swiftly and decisively to protect its franchise, the interests of its shareholders and the ongoing prospects and continuing enterprise value of the company and its subsidiaries,” he added.

American Realty, whose shares tumbled 37 percent after announcing the irregularities, has said no pending deals would be affected by its troubles. Its shares were off 7 percent to $8.21 on Monday.

RCS Capital stock, which closed down 14 percent last Wednesday, was off another 15.4 percent to $13.94 on Monday.

RCS agreed on Sept. 30 to buy Cole for at least $700 million, saying the acquisition would add $109 million of adjusted earnings by the end of 2015 through sales of Cole-sponsored non-traded REITs sold through Cole’s wholesale sales force and RCS retail brokers. American Realty bought Cole for about $7.2 billion in 2013.

The connections between American Realty, RCS and its more than 9,000 brokers are numerous.

Schorsch, the chairman and former chief executive officer of American Realty, is also executive chairman of the board of RCS. At least four RCS executives, including cofounder and president Michael Weil, previously held senior positions at American Realty Capital.

Gavin Brandon, named American Realty’s new chief accounting officer, previous worked at Cole.

RCS and American Realty are “two separate and distinct companies,” Backman said.

In a press release Monday, American Capital said RCS’ decision about Cole is a breach of its agreement and that management and the firm’s board are evaluating “all alternatives.”

Schorsch and a spokesman for American Capital did not immediately respond to calls seeking comment. (Reporting by Jed Horowitz; Editing by Jeffrey Benkoe)

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