Star Witness in Block Trial Says Schorsch Orchestrated Fraud
Lisa McAlister, the former chief accounting officer of American Realty Capital Properties and the government’s key witness in the criminal trial against her former boss Brian Block, testified on Monday that chairman and CEO Nicholas Schorsch instructed Block to falsely manipulate the company’s financials to make it appear that it had met certain targets when, in fact, it had fallen short.
McAlister, who pled guilty to fraud last year, and Block were accused of manipulating the company’s second quarter 2014 financial results by inflating the company’s adjusted funds from operations, or AFFO, hours before filing the results with the Securities and Exchange Commission.
According to McAlister, while on a call in Block’s office, Schorsch told Block that he could effectively manipulate the line item called “amortization of deferred financing costs” in order to hide the fudged numbers.
“It’s in your deferred financing cost,” Schorsch said, according to McAlister. “There it is. You know what you need to do.”
McAlister said that Block handed Ryan Steel, the director of financial reporting, a document with the revised deferred financing costs to be used in the AFFO calculation – which was overstated by approximately $0.03 per share. Instead of $0.26 per share, which was publicly reported by ARCP to its shareholders and the investing public, the correct AFFO was $0.23 per share.
McAlister explicitly testified that the three former employees committed fraud, but that she didn’t come forward sooner because she didn’t want to “rat” out her former boss.
Steel testified last week that Block used an improper methodology to calculate the company’s AFFO and that he had issued multiple warnings of the accounting mistake. He was granted immunity by federal prosecutors in exchange for his cooperation.
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.
Schorsch has not been named in any federal indictments regarding the ARCP affair or other AR Global-related scandals. MacAlister’s sentencing is expected later this summer.
