Feds move to undermine CFO Brian Block's defense of inaccurate financial filings at ARCP

With testimony concluded, case could go to the jury as early as Thursday
JUN 28, 2017

During cross-examination at his securities fraud trial Wednesday, Brian Block, the former chief financial officer at American Realty Capital Properties Inc., asserted that he wasn't operating in a "silo" when calculating a key accounting metric that had the effect of making the company's financial condition appear better than it really was. Mr. Block was questioned by assistant U.S. attorney Brian Blais, about the calculation of adjusted funds from operation, or AFFO, at the real estate investment trust that led to charges of securities fraud, conspiracy and making false filings to the Securities and Exchange Commission. Those charges stemmed from $23 million in inaccurate accounting entries at the company in 2014. Other witnesses have testified that those involved in the company's accounting were under pressure from then-ARCP chairman Nicholas Schorsch about making sure finanical reports were positive. In an email from January 2014, Mr. Schorsch wrote: "We must always hit our numbers." Mr. Block defended AFFO accounting at the company, testifying it was transparent and collaborative. "It was abundantly clear what we were doing," Mr. Block said, adding that there were many "eyeballs" on the accounting. At one point, when pressed about compensation he received for an ARCP merger with another REIT controlled by Mr. Schorsch, he said he was not acting in a "silo" and that no numbers were inflated. In turn, Mr. Blais peppered Mr. Block with apparent inconsistencies about AFFO at the company. At issue was a three-cent per share shortfall in AFFO at ARCP that another executive, Ryan Steel, the REIT's former director of financial reporting, had detected in May of 2014. Mr. Steel is a key government witness and has cut a deal with the government. Mr. Blais questioned Mr. Block about $13 million that was added to AFFO from defeasance, an accounting provision that voids a bond or loan when the borrower sets aside enough cash to service the borrower's debt. Asked why there was no email or record at the time, noting the solution to the AFFO shortfall, Mr. Block responded: "We weren't running around like we had a problem." Wasn't it curious that Mr. Block found "just enough" in the defeasance to boost the AFFO per share by three cents, Mr. Blais asked. Mr. Block said he had done no such thing. Mr. Blais also questioned Mr. Block about a $4 million bonus which was linked in part to growth of AFFO at ARCP. Mr. Block was fired from ARCP in October 2014 but remains partners with Mr. Schorsch at a private real estate company, AR Global. Mr. Schorsch is no longer involved with ARCP, which changed its name to Vereit Inc. in 2015. With testimony concluded, final summations are scheduled for 9 a.m. Thursday. After that, the jury will begin to deliberate.

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