In parallel investigations, the Department of Justice and the Securities Exchange Commission on Thursday charged the former chief financial officer of American Realty Capital Properties Inc., a large traded REIT now known as Vereit Inc., with overstating the financial performance of the company by purposefully inflating a key metric used by analysts and investors to assess the company.
According to the SEC's complaint, the company's former CFO, Brian S. Block and then chief accounting officer Lisa McAlister devised a scheme to manipulate the calculation of the REIT's adjusted funds from operations, or AFFO, a non-GAAP measure used when the company provided earnings guidance.
(More: How Nick Schorsch lost his mojo)
Mr. Block, 44, was arrested Thursday morning on conspiracy, securities fraud, and other charges at his home in Hatfield, Pa., according to a statement from the U.S. Attorney's Office for the Southern District of New York.
Ms. McAlister, 52, pled guilty on June 29 to one count of conspiracy to commit securities fraud and other offenses, including 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 U.S. government. 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.
“These charges against Brian Block are entirely unwarranted,” said Reid Weingarten, an attorney for Mr. Block and a partner at Steptoe & Johnson. “He is completely innocent and will be exonerated in court.”
FINAL HOURS
After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in ARCP's 2014 first quarter financial results, Mr. Block falsified the company's AFFO presentation in the final hours before filing the company's second quarter results. With Ms. McAlister in his office, Mr. Block plugged in fake numbers that concealed the first quarter overstatement of AFFO and made it appear that the company had met second-quarter estimates when, in fact, it had fallen short.
Ms. McAlister is an unindicted co-conspirator in the criminal action.
“We allege that these senior executives conjured up numbers to purposely conceal ARCP's true performance, misleadingly suggesting that the company had met AFFO estimates for the first and second quarters of the year,” said Sanjay Wadhwa, senior associate director of the SEC's New York Regional Office.
Jesse Galloway, a spokesman for AR Global, did not immediately return a call. A spokesman for Vereit said the company declined to comment
The news of the accounting problems at ARCP were revealed in October 2014. Both immediately resigned from the company. The company was formerly controlled by Nicholas Schorsch, the senior partner of AR Global, the adviser to many nontraded REITs. ARCP acquired at least two nontraded REITs controlled by Mr. Schorsch in 2013 and 2014.
