Two executives of a company once controlled by the now much-beleaguered Nicholas Schorsch have been charged with manipulating financial performance reports of the company, the Securities and Exchange Commission announced Thursday.
The executives are charged with overstating the financial performance of the large publicly traded real estate investment trust then known as American Realty Capital Properties, based in New York City, purposely inflating a key metric used by analysts and investors to assess the company, the SEC complaint says.
Brian S. Block, former chief financial officer of American Realty Capital Properties, and Lisa P. McAlister, former chief accounting officer, devised a scheme to manipulate the calculation of American Realty Capital Proprties’s adjusted funds from operations, a measure used when the company provided earnings guidance to investors and analysts. Block and McAlister both resigned from their positions once accounting errors came to light.
After warnings from internal accounting staff that an incorrect accounting method was used to calculate the firm’s 2014 first-quarter financial results, Block falsified the company’s report in the final hours before filing the company’s second-quarter results, the SEC complaint says. With McAlister in his office, Block 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, the SEC says.
“We allege that these senior executives conjured up numbers to purposely conceal American Realty Capita’Properties's true performance, misleadingly suggesting that the company had met estimates for the first and second quarters of the year,” says Sanjay Wadhwa, senior associate director of the SEC’s New York regional office.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York unsealed an indictment against Block and McAlister on Thursday. Block was arrested on conspiracy, securities fraud and other charges at his home in Hatfield, Pa., Thursday morning. McAlister, of Arlington, Mass., pled guilty earlier to the charges in the indictment, including securities fraud, and is cooperating with authorities, according to the U.S. Attorney’s Office.
Schorsch companies have been in trouble for months. American Realty Capital Properties changed its name to Vereit, taken from the Latin word for truth, “veritas,” after the firm received much negative publicity because of the SEC investigations. RCS Capital, another company originally controlled by Schorsch, declared bankruptcy earlier this year. Schorsch has no connectiion with Vereit. The SEC’s investigation is continuing.