Last Thursday, the Second Circuit Court of Appeals upheld the conviction of Brian Block, long-time partner of AR Global’s Nicholas Schorsch and former chief financial officer of American Realty Capital Properties, who was convicted in November 2017 of securities fraud and related charges after he intentionally filed doctored financial statements with the Securities and Exchange Commission. Block was sentenced to 18 months in federal prison followed by three years of supervised release.
While serving as CFO of ARCP, a publicly traded real estate investment trust founded by Schorsch, Block participated in a scheme to manipulate the reported financial results of the company in various SEC filings made in July 2014.
Block and former chief accounting officer Lisa McAlister were charged with fraudulently inflating the company’s adjusted funds from operations by approximately $13 million to cover up a methodological error in calculating AFFO in prior quarters and to make it appear as though the company had met certain financial targets when it had not. McAlister cooperated with the prosecution as its key witness against Block and sentenced to time served and one year of supervised release.
In his argument to the appeals court, Block claimed that there was insufficient evidence for the jury to conclude that the manipulated numbers filed with the SEC were false. His attorneys argued that AFFO does not have an established industry definition, and there are no specific regulations or standards that relate to it, nor prescribe how it should be calculated.
The appellate court, however, determined that there was sufficient evidence introduced for a jury to find “beyond a reasonable doubt that Block’s AFFO reporting was false or misleading within the meaning of the securities laws.”
“We review challenges to the sufficiency of the evidence de novo, considering the totality of the evidence and drawing all permissible inferences in the government’s favor, and will affirm if any rational jury could have found the defendant guilty beyond a reasonable doubt,” the court’s ruling stated.
In addition to his conviction, Block also unsuccessfully appealed a March 19, 2019 opinion and order denying his motion for a new trial based on the government’s alleged failure to disclose impeachment information it became aware of during trial.
Following the highly publicized 2014 accounting scandal, ARCP’s market value dropped by more than $3 billion and Schorsch resigned as executive chairman. The company replaced its board members and senior management team and rebranded as Vereit (NYSE: VER) – a blend of veritas, the Latin word for truth, and REIT.
Late last year, Vereit agreed to pay an $8 million civil penalty to settle SEC charges stemming from the legacy company’s accounting fraud.
ARCP was founded by Nicholas Schorsch and his partners at AR Global (formerly AR Capital), including Block, William Kahane, Michael Weil, and Peter Budko.