Brian Block, the former chief financial officer of American Realty Capital Properties, was arraigned this week in the U.S. District Court for the Southern District of New York for charges stemming from his role in the 2014 accounting scandal that began the downfall of American Realty Capital from their position as the dominant player in the direct investment industry. Block, who plead not guilty, was arrested earlier this month at his home in Pennsylvania on conspiracy, securities fraud, and other charges. The trial is set for May 15, 2017.
Block was a founding partner of American Realty Capital, later known as AR Capital, along with Nicholas Schorsch, Michael Weil, Peter Budko and William Kahane. Following the various scandals that commenced with the ARCP accounting cover-up for which Block has been arrested, the company formed AR Global – where Block, Schorsch, Weil, Budko and Kahane are all presumed to continue in their roles as partners.
The SEC filed a parallel action against Block and former-chief accounting officer Lisa McAlister, alleging the pair devised a scheme to manipulate the calculation of ARCP’s adjusted funds from operations, a non-GAAP financial performance measurement.
After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in the 2014 first quarter financial results, Block allegedly falsified the company’s AFFO presentation in the final hours before filing the company’s second quarter results. With McAlister in his office, Block allegedly plugged in fake numbers that concealed the first quarter overstatement and made it appear that the company had met second-quarter estimates when, in fact, it had fallen short.
McAlister, who is cooperating with the government, pled guilty on June 29th to one count of conspiracy to commit securities fraud, one count of securities fraud, one count of making false filings with the SEC, and one count of making false statements in a matter within the jurisdiction of the executive branch of the United States Government.
Block was charged with one count of conspiracy to commit securities fraud, one count of securities fraud, two counts of making false filings with the SEC, and two counts of submitting false certifications along with required filings with the SEC.
The securities fraud and false filings charges each carry a maximum prison term of 20 years. The conspiracy and false statements charges each carry a maximum prison term of five years.
American Realty Capital Properties is now known as VEREIT (NYSE: VER) and has severed all ties to AR Global.