Massachusetts authorities are looking to bar a broker-dealer from operating in the state over what Commonwealth Secretary William Galvin alleges was a fraudulent scheme to game shareholder proxy votes.
Galvin is alleging that Realty Capital Securities, a Boston-based wholesale broker-dealer, engaged in a wide-ranging campaign to fabricate shareholder votes on issues supported by management with direct bearing on the fortunes of the firm.
"In an era of expansive and complex corporate structures, a shareholder's right to vote by proxy is a sacrosanct right to participate in the democratic process of the capital markets," the complaint reads. "Through fraudulent actions, including fabricating numerous shareholder votes, Realty Capital Securities ... eviscerated this fundamental right of shareholders."
A spokesman for RCS did not immediately respond to phone and email messages seeking comment.
RCS is a subsidiary of RCS Capital, or RCAP, a publicly traded holding company specializing in alternative investments such as nontraded REITs and business-development companies.
Galvin's complaint describes a "pattern of RCS employees masquerading as shareholders to cast proxy votes in favor of management proposals." In one such instance, concerning a fund sponsored by an affiliate of the broker, a registered rep of RCS allegedly contacted a proxy solicitation firm and claimed to have a shareholder on the line who was ready to vote. Instead of conferencing in the shareholder, the rep put an RCS employee on the line, who "used a contrived accent and impersonated [the] shareholder" to vote the shares in favor of the fund's management.
According to Galvin's complaint, "RCS employees, facing intense pressure from management, replicated this fraudulent action over numerous proxy votes."
Though RCS operates as a broker-dealer, the firm also solicited proxy votes on funds sponsored by its affiliate, American Realty Capital. The complaint alleges that employees received no training on how to conduct proxy services, and describes the pressure that employees were under to "'steamroll' shareholders into voting in favor of management at all costs," which at times escalated to "thinly veiled threats regarding continued employment at RCS."
What's more, the issues that came up for votes in RCS meetings in 2015 went beyond the standard fare of shareholder proxies, but included significant changes to the firm's investment advisory agreement and put the firm's management in the driver's seat in a proposed transaction with Apollo Global Management.
Galvin is seeking to revoke RCS' broker-registration in Massachusetts, levy an administrative find and censure the firm.
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