Judge declines to dismiss indictment against former ARCP CFO Brian Block

A federal judge on Friday declined to dismiss an indictment alleging that Brian Block, the former chief financial officer of American Realty Capital Properties Inc., or ARCP, participated in a fraudulent scheme to inflate the company’s financial data.

Mr. Block was arrested at his home in Hatfield, Pa., in September by the FBI and later that month pleaded not guilty in federal court in New York to charges of conspiracy to commit securities fraud, securities fraud and making false filings with the Securities and Exchange Commission.

Mr. Block’s attorneys in April argued that the federal indictment should be dismissed because it violated due process and because it failed to adequately allege that his misstatements were materially false or misleading. The U.S. district judge, J. Paul Oetken, denied those motions on Friday.

“The indictment makes clear that the government is not challenging the method Block used to calculate [adjusted funds from operation], but rather the inputs he used in that calculation — the government claims that the inputs on their own fraudulently inflated the ultimate output,” Mr. Oetken wrote.

An attorney for Mr. Block, Michael Miller, did not return a call on Monday morning for comment.

The problems began for Mr. Block in October 2014. That’s when ARCP disclosed $23 million in accounting mistakes at the company from earlier in the year that were intentionally not corrected. He immediately resigned, as did the company’s former chief accounting officer, Lisa McAllister, who is expected to testify at Mr. Block’s trial. She pled guilty last June to one count of conspiracy to commit securities fraud and other offenses.

Mr. Block served as CFO of ARCP in the first and second quarters of 2014, according to a court filing. The indictment alleges that Mr. Block took part in a fraudulent scheme to falsely inflate the financial metric known as adjusted funds from operation (AFFO) in ARCP’s public filings for the second quarter of 2014. AFFO is an important metric in evaluating REITs and measures a company’s cash flow.

The indictment claims that Mr. Block inflated these figures so that they would be consistent with ARCP’s AFFO guidance and to conceal errors made in the first quarter of 2014. The impact of the misstatement on 2014 AFFO was approximately $13 million, according to court documents.

Mr. Block’s trial is scheduled to begin June 12. He is one of the minority partners at AR Global, a privately held investment management company controlled by Nicholas Schorsch, the former nontraded real estate investment trust czar. AR Global is the sponsor and manager of $10 billion of assets, mostly held in various nontraded REITs.

Mr. Schorsch is no longer involved with ARCP, which changed its name to Vereit Inc. in 2015 after he left the company.