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Another Proxy Voting Scam – And The Scamsters - Revealed


In mid-November our good buddy Broc Romanek, the ever watchful editor of The CorporateCounsel.net sent us a link to a Bloomberg news story and asked…“Ever see anything like this?” Several companies connected to real estate mogul Nicholas Schorsch’s investment empire were caught pressuring employees into manufacturing proxy votes to rig an election, according to a complaint filed by Massachusetts securities regulator William Galvin.

The amazingly convoluted and ultimately failed deal involved the transfer of $19 billion in assets between two Schorsch- linked companies - RCS Capital Corp., AR Capital - and another Schorsch-affiliate, Apollo. Before the Apollo deal could happen, according to the Massachusetts complaint, shareholders of Business Development Corp. of America - yet ANOTHER Schorsch-affiliated company - would have to approve nine changes to their charter -- which an employee cited in the complaint characterized to state investigators as “less shareholder friendly.”

Enter Realty Capital Securities - a Boston-based subsidiary of RCS Capital: Apollo and AR Capital paid  approximately $375,000 to RCS and a related company for “proxy solicitation services,” the complaint alleges - an incredibly large fee, we’d say - “notwithstanding the inherent conflict with the brokerage firm’s vested interest in reaching an affirmative vote,” Galvin’s office said in a statement announcing its action.

As part of the alleged scheme, RCS employees called an (un-named) proxy firm, claiming to have located BDCA shareholders, and conferenced in colleagues who in at least two instances impersonated shareholders, according to the complaint, to ‘vote with management.’

RCS exerted “immense internal pressure” to round up votes, according to the complaint, including an Aug. 5th e-mail from a senior RCS officer: “We need each and everyone of you regardless of excuse and circumstance to focus on this all day today...this...is for your own personal well-being,” the manager wrote, according to the complaint. Employees were also told that if they didn’t participate in the proxy campaign they would get a call from Michael Weil (the chairman of RCS and AR Capital’s president & CEO) and would risk termination, the complaint said.

The complaint, prompted by a “concerned employee” of RCS, accuses Realty Capital Securities of proxy-voting fraud and seeks to revoke its broker-dealer registration in the state. RCS Capital, in a statement, said it is reviewing the complaint and is fully cooperating with all relevant agencies.

And here’s our answer to Broc:

“Sadly, yes, we have seen, and reported on many, many cases like this....for example:

A hedge-fund investor who lent his shares to another, related entity so both the borrower (him) and lender (also him) could vote the same shares twice - and who also tried to bluff the target into submission by asserting that he had an even bigger position in the stock, as yet unvoted - which he did not have.

A big proxy solicitor in Canada (which has since left the field there) that was ordered to pay for an entirely new shareholder meeting after big holders discovered their votes were improperly recorded as Yes rather than No votes via the proxy solicitor’s telephone voting service...so the solicitor could win - and collect a bonus.

Last-minute faxed votes in a proxy contest - that were being “manufactured” and sent to the meeting site from a dissident’s place of business - and where, happily for the target company, the fax machine’s ID gave them away to the CTH Inspectors of Election as being fabricated votes...and yes....there’s more…including….

Most brazen of all - although we have not seen this in quite a while - proxies that were routinely being slipped under Inspectors’ hotel room doors in the wee hours…by staffers of a major proxy solicitation firm.

Perhaps the biggest takeaway here is the fact that the proxy solicitation and tabulation business is almost completely unregulated - and largely unpoliced. Thank goodness for state securities regulators - and for whistleblowers too - but maybe the SEC ought to be looking into this…if ever they get around to their long-promised/long-delayed review of “proxy plumbing” issues.