Chief Financial Officer Brian Block and Chief Accounting Officer Lisa McAlister resigned after a company probe found that an error made in first-quarter results was intentionally covered up in the second quarter. The mistake was relatively small -- reducing adjusted funds from operations by about $23 million -- for a company that owns more than 4,400 properties.

Tangible Portfolio

“The stock appears to be trading at a level that’s discounting a list of concerns,” said Paul Adornato, a managing director at BMO Capital Markets in New York, who cut his rating on the shares to market perform from outperform. “On the flipside, there is a tangible portfolio of real estate underlying the stock. The question is: What’s the appropriate discount given the uncertainties and when we will get resolution on these items?”

The concerns are spilling into AR Capital. LPL Financial Holdings Inc. said yesterday it is indefinitely suspending sales of investment products sponsored by companies tied to American Realty and RCS. Securities America, a broker-dealer with more than 1,800 advisers, also has suspended sales for two REITs --- Cole Capital Properties V and Phillips Edison - ARC Grocery Center REIT II, the company said in a statement.

Sandlapper Securities LLC, an independent broker-dealer based in Greenville, South Carolina also suspended orders for AR Capital REITs, CEO Trevor Gordon said in a phone interview.

‘Very Troubling’

“This accounting error is very troubling to us,” Gordon said. “Is this an isolated incident or a systemic problem? We’re stepping back at this moment in time. We’re not terminating our agreement but we’re suspending new purchases for the time being.”

Schorsch told brokers on a conference call last week that the accounting errors at American Realty Capital Properties don’t affect AR Capital programs or those by Cole, according to a report in InvestmentNews.

Ron Edde, CEO of San Diego-based Millennium Career Advisors, a recruiting firm for financial advisers, said the recent headlines make brokers that sell to individual investors nervous.

“Any time your firm gets a public black eye, especially a high-profile black eye, that makes clients nervous,” Edde said. “It makes brokers nervous because they don’t want to lose clients. No broker in any firm wants to see their nose bloodied in the press.”

Nervous Investors

Larry Cohen, owner of Scottsdale, Arizona-based The REIT Advisor, which matches sellers of non-traded REITs with buyers, said he has been getting contacted by owners of AR Capital REIT shares since the accounting news broke.

The shares are trading at about 25 percent off the current value, he said. “Our phone has been very active with calls from individual investors saying, ‘Oops, I made a mistake. How can I get out of this?’” Cohen said. “These people are nervous. They don’t know what they own. They’re unsophisticated investors to begin with.”