Brian S. Block, a longtime business associate and partner of real estate investor Nicholas Schorsch, pleaded not guilty on Wednesday 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.
Wearing a dark blue suit, light blue shirt and striped tie, Mr. Block appeared pensive at the arraignment in U.S. District Court for the Southern District of Manhattan. A trial date for May 15, 2017 was set during the hearing.
Mr. Block, the former chief financial officer of American Realty Capital Properties Inc., now known as Vereit Inc.,
was charged by the U.S. Justice Department earlier this month with conspiracy, securities fraud and other charges. He was arrested on September 8 at his home in Hatfield, Pa., and is free on $1 million bail.
During the hearing, Mr. Block's attorney, Reid Weingarten, a partner at Steptoe & Johnson, protested the manner of the FBI's arrest of Mr. Block. Agents showed up with guns drawn at 6 a.m. and "traumatized" his 4-year old son, Mr. Weingarten said.
The FBI's arrest was done in a manner "to intimidate the defendant into cooperation" when he could have instead surrendered himself to the court, Mr. Weingarten said.
Assistant U.S. attorney Jason Cowley countered that claim, saying that defendants are arrested in this manner for all types of crimes.
After the hearing, Mr. Block said he had no comment beyond his plea of not guilty.
“As alleged, Brian Block knowingly misled the investing public through material misrepresentations about a key metric that was used to evaluate ARCP's financial performance” in 2014, according to statement earlier this month by Manhattan U.S. attorney Preet Bharara.
According to
a complaint by the Securities and Exchange Commission, which has a parallel investigation into the accounting at ARCP, Mr. Block and ARCP's then-chief accounting officer Lisa McAlister allegedly devised a scheme to manipulate the calculation of the $20 billion
REIT's adjusted funds from operations, or AFFO, a non-GAAP measure used when the company provided earnings guidance.
(More: How Nick Schorsch lost his mojo)
After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in ARCP's 2014 first-quarter financial results, Mr. Block allegedly falsified the company's AFFO presentation in the final hours before filing the company's second-quarter results. With Ms. McAlister in his office, Mr. Block allegedly inserted fake numbers in the company's second-quarter filings that concealed the first-quarter overstatement of AFFO and made it appear that the company had met second-quarter estimates when, in fact, it had fallen short.
Mr. Block is facing one count of conspiracy to commit securities fraud, one count of securities fraud, two counts of making false filings with the SEC, and two counts of making false certifications along with required filings with the SEC. The securities fraud, false filing charges and false certification charges carry a maximum prison term of 20 years. The charge of conspiracy carries a maximum term of five years.
After news of the accounting problems at ARCP surfaced in October 2014, Mr. Block and Ms. McAlister immediately resigned from the company.
Ms. McAlister, 52, pled guilty on June 29 to one count of conspiracy to commit securities fraud and other offenses, including one count of securities fraud, one count of making false filings with the SEC, and one count of making false statements in a matter within the jurisdiction of the executive branch of the U.S. government. The securities fraud and false filings charges each carry a maximum prison term of 20 years. The conspiracy and false statements charges each carry a maximum prison term of five years.
Mr. Block was CFO at ARCP when Mr. Schorsch was its CEO and chairman. He is also one of the five partners of AR Global, formerly known as AR Capital, the privately held sponsor of many nontraded REITs. Mr. Schorsch is the controlling partner of AR Global. Mr. Schorsch no longer has control over Vereit.
Jesse Galloway, a spokesman for AR Global, did not return a call for comment on Wednesday.
