Federal prosecutors filed their brief with the Second Circuit Court of Appeals on Wednesday urging the court to uphold 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 of securities fraud and other charges following a three-week jury trial last summer.
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 fraudulently inflated 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.
In his argument to the appeals court, Block claims 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 arguments made in the Block appeal echo the arguments made in his defense during his jury trial last summer.
Block’s legal team argued that the government failed to prove that the AFFO reporting was false by not calling an expert accountant to testify, claiming that “undisputed evidence at trial clearly showed that the AFFO adjustments were supported by ARCP’s books and records and consistent with ARCP’s disclosures.”
“Specifically, the undisputed evidence showed that ARCP had elected to pay off hundreds of millions of dollars of debt that it had inherited from two recent acquisitions as part of its defeasement campaign—i.e., replacing the preexisting debt of two acquired companies with new debt carrying a much lower interest rate,” argued Block’s attorneys.
Block’s team also argued that evidence was introduced at trial that was “irrelevant and unduly prejudicial”, such as his exorbitant compensation package which was tied to AFFO performance, company stock holdings, his termination from ARCP, and that he engaged in an alleged cover-up. The feds claim that Block’s arguments are without merit.
During the trial, the government presented testimony from 10 witnesses, including two of Block’s co-conspirators, former ARCP chief accounting officer Lisa McAlister and former director of financial reporting Ryan Steel. Documentary evidence at the trial included SEC filings, e-mail correspondence, audit records, spreadsheets, and other business records.
In November 2017, Judge J. Paul Oetken sentenced Block to 18 months in prison, followed by three years’ supervised release, and imposed a $100,000 fine and a $600 mandatory special assessment.
Neither Schorsch nor any of Block’s other partners at AR Global have been charged with any crime in the ARCP or other ARC-related scandals.