Former ARCP Executive Testifies “The Numbers Were Wrong” in Block Fraud Trial
The criminal trial against Brian Block, former chief financial officer of American Realty Capital Properties (NYSE: ARCP) and partner in Nicholas Schorsch’s AR Global, commenced this week in a Manhattan district court. The case is being heard by Judge Paul Oetke.
Block was a founding partner of American Realty Capital, later known as AR Capital, along with chairman and CEO Nicholas Schorsch, Michael Weil, Peter Budko and William Kahane. Following the various scandals that commenced with the ARCP accounting cover-up for which Block is being charged, the company formed AR Global – where Block, Schorsch, Weil, Budko and Kahane are all presumed to continue in their roles as partners.
Block, along with former chief accounting officer Lisa McAlister, was accused of manipulating the company’s second quarter 2014 financial results by inflating the company’s adjusted funds from operations to conceal errors made in the first quarter of 2014 and to make it appear that the company had met second-quarter estimates when, in fact, it had fallen short.
Both prosecution and defense teams concluded their opening statements earlier this week. The former charges Block with knowingly reporting false results in a blatant effort to “deceive the marketplace.” Block’s defense responding by stating that Block acted “in good faith” to report AFFO, which they claimed is a “tricky” financial metric to measure.
In two days of testimony following opening statements, Ryan Steel, ARCP’s former director of financial reporting, stated that he had issued multiple warnings of an accounting mistake in the company’s calculation of AFFO. Steel was granted immunity by federal prosecutors in exchange for his cooperation. “I knew the numbers were wrong,” said Steel while describing a meeting in Block’s office in July 2014 during which he testified that Block used an improper methodology to calculate the company’s AFFO.
According to Steel, McAlister accepted Block’s calculation, despite his objections. McAlister, who pleaded guilty to one count of conspiracy to commit securities fraud last year, is expected to testify on behalf of the prosecution in the coming days.
