Preferred Stock Shareholders in RCS Capital Corporation Expected to be Wiped Out

shutterstock_175993865The securities lawyers of Gana LLP are investigating investors that were recommended to invest in preferred stock issued by RCS Capital Corporation (RCS). According to the Wall Street Journal, RCS Capital plans to file for chapter 11 bankruptcy protection under a prearranged that will allow RCS to focus on its retail brokerage firm conglomerate Cetera Financial Group. As part of the planned deal lenders agreed to invest $150 million in new working capital into Cetera. Also according to the plan, the company expects debt reduction and the elimination of preferred stock worth more than $500 million.

Our firm is investigating potential unsuitable recommendations in RCS preferred stock. Before recommending investments brokers and advisors must ensure that the investment is appropriate for the investor and conduct due diligence on the company in order to understand the risks and prospects of the company. With a company as troubled and opaque as RCS, investors likely relied upon the due diligence of their advisors in making investments in the company.

The issuance of large amounts of preferred stock coincided with the downfall of RCS and was an extremely risky investment. As a background chronicled by InvestmentNews, in the fall of October 2013, Nicholas Schorsch, the owner of RCS and many of its affiliates, had capped off a string of acquisitions in just two years costing $8.8 billion in total and forging a giant non-traded REIT and broker-dealer conglomerate.

At about that time RCS began issuing huge amount preferred stock. On April 29, 2014, the Company issued 14,657,980 shares of convertible preferred stock to affiliates of Luxor Capital Group in a private placement. According to the share terms the convertible preferred stock was entitled to a dividend of 7% of the liquidation preference in cash and a dividend of 8% of the liquidation preference if a quarterly dividend is not paid in cash on the dividend payment date.

On Oct. 29, 2014, RCS affiliate American Realty Capital Properties Inc., (ARCP) revealed a $23 million intentional accounting misstatement that had resulted in the company reporting inflated financial results. Immediately the stock for ARCP and RCS Capital plummeted and never recovered wiping out billions of dollars in market capitalization. The reverberations from the accounting scandal snowballed into the present bankruptcy through additional scandals and accusations that ended up mothballing other deals and acquisition plans.

Along the way RCS continued to issue preferred stock as late as a August 19, 2015 private placement of $37.5 million of newly issued convertible preferred stock. RCS Capital issued $25.0 million in liquidation preference of Series D-1 Convertible Preferred Stock to a subsidiary of Apollo and $12.5 million in liquidation preference of Series D-2 Convertible Preferred Stock to Luxor Capital Group and its affiliates. Now these investments, recommended less than two years ago may end up being worthless.

The securities fraud lawyers at Gana LLP represent investment customers who have suffered losses due to the inappropriate advice of their advisors. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.