The former chief financial officer of American Realty Capital Partners Inc. was convicted of misleading investors by falsely inflating a key financial metric used to evaluate the performance of the real estate investment trust.
Brian Block, of Hatfield, Pennsylvania, was found guilty Friday by a federal jury in Manhattan following a trial that began June 12. He faces years in prison when he’s sentenced on Oct. 26.
Block, 44, was convicted of helping orchestrate a fraud with the company’s chief accounting officer, Lisa McAlister, who pleaded guilty in June 2016 and is cooperating with the government. McAlister testified for the prosecution during the trial, describing a pressure-packed environment where meeting forecasts of financial results was paramount, especially the metric Block was accused of manipulating -- adjusted funds from operations, which was so important employees were reminded of its target on computer mouse pads.
“Block made up numbers and fudged the books,” Acting Manhattan U.S. Attorney Joon H. Kim said in a statement. “The integrity of our markets rests on the truth of the financial information provided to investors. ”
"We were hoping for a different outcome," Michael C. Miller, a lawyer for Block, said after the verdict. "We still believe Brian Block is innocent. We will appeal."
Block was convicted of six counts, including conspiracy and securities fraud.
Thousands of Properties
Phoenix-based American Realty, now known as Vereit Inc., started in December 2010 and expanded through a flurry of real estate purchases that made it one of the largest U.S. owners of single-tenant buildings such as drugstores, banks and restaurants. It owns more than 4,100 properties in the U.S., Puerto Rico and Canada.
Disclosure of the accounting errors in 2014 triggered a sharp dive in the stock’s price that wiped out $4 billion in market value and led to the departures of executives including Chairman Nicholas Schorsch and Chief Executive Officer David Kay. It also sparked an FBI investigation and led some brokers to temporarily halt sales tied to Schorsch’s AR Capital LLC, the biggest sponsor at the time of non-traded REITs.
Schorsch resigned from the company’s board and those of more than a dozen American Realty Capital affiliates following the disclosure of the accounting irregularities. While he hasn’t been charged, he faces numerous lawsuits over the scandal. McAlister testified that Schorsch participated in a telephone conversation with Block the night before the company’s second-quarter earnings were released -- the same time that prosecutors allege she and Block falsified the measure.