As trial of ARCP CFO Brian Block comes to close, two sides engage in smear campaign against witnesses

The prosecution labeled Mr. Block's cover story as a "total charade," while the defense described the other side's two star witnesses as liars

Jun 29, 2017 @ 5:55 pm

By Greg Iacurci

Attorneys presented closing arguments Thursday in the securities fraud trial for Brian Block, the former chief financial officer at the giant REIT once controlled by Nicholas Schorsch, with the prosecution calling Mr. Block a liar who fabricated testimony and the defense questioning the credibility of the prosecution's two star witnesses.

"Brian Block chose to deceive the public. He chose to lie," Edward Imperatore, assistant U.S. attorney, told the jury in the trial, which is now entering its third week in Manhattan federal court.

Mr. Block is accused of cooking the books at the net lease real estate investment trust, American Realty Capital Properties Inc. Specifically, the federal government claims Mr. Block, supposedly under pressure from Mr. Schorsch, inflated an important REIT accounting metric called "adjusted funds from operation," or AFFO, in the company's financial statements for the second quarter of 2014.

Mr. Block's defense team holds that he didn't commit fraud and acted in good faith when signing off on the statements.

"We profoundly disagree with the theory put forward," Reid Weingarten, partner at Steptoe & Johnson, told jurors Thursday. "Fraud wasn't included in the mix."

Mr. Imperatore broadly summed up the prosecution's arguments against Mr. Block by saying the defendant acted with the intent to deceive, focusing on the testimony of primary witnesses Lisa McAlister, ARCP's former chief accounting officer, and Ryan Steel, the REIT's former director of financial reporting.

Ms. McAlister and Mr. Steel testified they were in the room with Mr. Block when he fudged the accounting numbers. Ms. McAlister testified that she and Mr. Steel overheard a conference call with Mr. Schorsch during which the latter directed Mr. Block how to execute the fraudulent accounting.

"If you believe either of them, this case is over and Block is guilty," Mr. Imperatore said.

Ms. McAlister pleaded guilty last year to four fraud charges, and her sentencing is expected later this summer.

The prosecution also called Mr. Block's cover story for the alleged fraud a "total charade." Mr. Block claims the inflated accounted numbers were legitimately represented in financial statements by an "add-back" of $17 million in mortgage defeasance.

"There is not a single shred of evidence aside from Brian Block's false, fabricated testimony" that Mr. Block ever mentioned defeasance before an audit committee's investigation of the inflated AFFO, said Mr. Imperatore.

"He took an oath like every other witness in this case and he told you one false, fabricated thing after another," Mr. Imperatore continued.

Mr. Weingarten defended his client first by questioning the credibility of Ms. McAlister and Mr. Steel, telling the jury, "You are entirely justified in discarding the uncorroborated word of both of them."

He called Ms. McAlister an "absurd witness," and referenced false statements she made in a civil complaint she filed against Mr. Schorsch and ARCP in December 2014 and one she later filed with the Occupational Safety and Health Administration. She claimed she was the whistleblower at ARCP, which wasn't the case.

"She is a liar. She will lie under oath," said Mr. Weingarten. He painted a similar picture of Mr. Steel, saying, "He is very, very, very selective with the truth," and was a young man looking to avoid potential jail time.

"He's just a kid, scared out of his daylight," Mr. Weingarten said. "[The prosecution] has made a decision about what they think happened, and Ryan Steel is happy to help. He did not want to be in Lisa McAlister's shoes."

He also described AFFO accounting as just one small piece of a much larger beast that grew into a REIT powerhouse within a short period of time.

"[This event] is a pimple on an elephant's tush," Mr. Weingarten said, expressing that while AFFO mattered, it was "not the only thing [Mr. Block] cared about on July 28, and far from it."

July 28 is supposedly the date on which Mr. Block committed the fraud.

"I'm not asking for pity. I'm asking for real understanding about the world of Brian Block," Mr. Weingarten said.

A verdict is expected to be handed down Friday.

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