The AIG Advisor Group of broker-dealers is among the latest brokerage to suspend the sale of two American Realty Capital REITs.
Meanwhile, LPL Financial LLC, which has about 14,000 advisors, also announced today in a statement it is indefinitely suspending sales of investment products sponsored by American Realty Capital Properties Inc. and RCS Capital Corporation and their respective affiliates.
“Due to recent disclosures of accounting irregularities made by American Realty Capital Properties, AIG Advisor Group has chosen to temporarily suspend sales in two Real Estate Investment Trusts (REITs) effective immediately,” said Advisor Group spokeswoman Linda Malamut in an e-mail.
The products involved are the American Realty Capital New York City REIT, and the Phillips Edison-ARC Grocery Center REIT II.
In recent years, American Realty Capital and its affiliates have for more than 50% of all non-traded REIT sales in the nation. Many of their products have outperformed rivals, in part because the company was able to raise a lot of money in 2009 and 2010 and purchase real estate at bargain prices. Nonetheless, the entire non-traded REIT has drawn intense regulatory scrutiny due to the hefty fees and commissions and sub-standard performance of a number of vehicles. Several broker-dealers have paid hefty fines for unsuitable sales of the products, which may help explain why these brokerage firms have been so quick to halt sales of them.
The four Advisor Group broker-dealers are Royal Alliance Associates, FSC Securities Corp., Sagepoint Financial and Woodbury Financial Services. In total, the firms have more than 6,000 advisors.
The problems at American Realty surfaced last Wednesday when the company said it had fired its chief financial officer and chief accounting officer and would restate earnings for the first half of this year because of "intentional" accounting errors.
The Advisor Group’s broker-dealers were formerly run by Larry Roth, now chief executive of Cetera Financial Group, the group of broker-dealers owned by RCS Capital Corp. (RCAP).
RCAP itself is now engaged in open warfare with its sister company American Realty Capital Properties (ARCP) over the surprise announcement early Monday by RCAP that it was backing away from its pending $700 million purchase of Cole Capital from ARCP.