The defense for Brian Block hit back Tuesday at a key witness in the government's securities fraud case against the former real estate executive, portraying the witness, Lisa McAlister, as a liar who would testify to almost anything to protect her family.
Mr. Block is the former chief financial officer of American Realty Capital Properties Inc., a giant net lease real estate investment trust, accused of securities fraud and other charges stemming from $23 million in inaccurate accounting entries.
Ms. McAlister, the REIT's former chief accounting officer, has pleaded guilty to four fraud charges, and is expected to be sentenced after Mr. Block's trial is over.
On Monday, Ms. McAlister testified in U.S. district court in Manhattan that Nicholas Schorsch, the former chairman of ARCP, had a hand in cooking the books in July 2014 by directing Mr. Block to fudge numbers for a cash flow metric REITs use, adjusted funds from operation, or AFFO. The alleged fraud culminated on the evening of July 28 as Mr. Block and Ms. McAlister prepared the company's financial reports for the second quarter of 2014, which were released the next day.
On Tuesday, Mr. Block's attorney, Reid Weingarten, stressed in his questioning that Ms. McAlister's testimony could not be trusted. He pointed to false statements she had made in a civil complaint she filed against Mr. Schorsch and ARCP in December 2014, as well as a complaint she later filed with OSHA, the Occupational Safety and Health Administration. She had claimed she was the whistleblower at ARCP when, in fact, she was not.
Ms. McAlister admitted that she had lied in the past but insisted she was truthful in her testimony against Mr. Block. "I would say, yes, there were lies," she said. "I've taken my hit for that and I'm sitting here telling the truth.
When the accounting scandal came to light, she said she was forced to resign from ARCP and was "desperate" to take care of her two sons, who are both special needs children. "I was very angry about how my departure came about, and I was desperate for money for my boys," said Ms. McAlister.
Mr. Weingarten also pressed Ms. McAlister on her knowledge of accounting for AFFO, which has no set government or industry guidelines. "Is it fair to say you are an AFFO virgin," Mr. Weingarten asked. "I would say it's fair to say I had not worked on AFFO prior to ARCP," Ms. McAlister responded.
Last week, another government witness, Ryan Steel, the former director of financial reporting at ARCP, testified that he repeatedly raised the warning of accounting mistakes in AFFO in the spring and summer of 2014.