Prosecutors accused Block and McAlister of overstating the metric, a measure used by REITs that reflect income without considering depreciation and amortization expenses and excludes some one-time expenses. REITs use the metric along with traditional methods of accounting to help more accurately reflects cash flow and financial performance.

Ryan Steel, the company’s director of external reporting, testified that he told Block, McAlister and others early in 2014 that the method of calculating the metric contained an error that led it to report inflated income in the first quarter of 2014 and earlier financial periods. According to the government, Block and McAlister continued to use the wrong calculation in reporting second-quarter earnings, falsely letting shareholders believe that earnings were in line with analysts’ expectations despite Steel’s warnings.

Block Testified

Block took the stand in his own defense, telling jurors that "many, many people," including lawyers and investment bankers, had reviewed the company’s financial results and signed off on them. Lawyers for Block argued that he never tried to hide how the metric was calculated and that his accounting methods were used with the "full knowledge of everyone" that participated in the earnings process. Reid Weingarten, an attorney for the former CFO, told jurors during his summation that there was no consensus in accounting circles as to how to calculate adjusted funds from operations.

"This was no man’s land," Weingarten said. "This was the Wild West. This was unregulated territory. You could present AFFO to investors however you saw fit."

American Realty Capital was a "huge company" undergoing a "massive transformation," and the measure of adjusted funds from operation was a minor issue to Block and others, Weingarten said.

"To call this issue a pimple on an elephant’s tush overstates it," Weingarten said.

Prosecutors said Block abused his position by inflating the most important measure of financial performance and hiding it from investors. A three-cent difference in the per-share adjusted funds from operation could have led to a bonus as much as eight times above Block’s $500,000 base salary, Assistant U.S. Attorney Edward Imperatore told jurors during his closing argument.

"Brian Block chose to deceive the public," Imperatore said. "He chose to lie."

The case is U.S. v. Block, 16-cr-00595, U.S. District Court, Southern District of New York (Manhattan).