Brian Block sentenced to 18 months in prison

The government had sought a sentence of at least seven years against the former Nick Schorsch colleague

Nov 8, 2017 @ 5:00 pm

By Greg Iacurci

Brian Block, the former chief financial officer of American Realty Capital Properties Inc., a firm founded by real estate investor Nicholas Schorsch, was sentenced Wednesday to 18 months in prison, a $100,000 fine and supervised release of three years, on his conviction of six counts of fraud.

He will surrender to authorities on Jan 9, 2018, by 2:30 pm. The government had sought a sentence of at least seven years.

On June 30, a New York federal jury found Mr. Block guilty.

(More: How Nick Schorsch lost his mojo.)

The prosecution didn't comment and referred questions to the press office. The lead defense attorney did not immediately respond to a request for comment.

Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York, who delivered the sentence after 4 p.m. to a court room full with Mr. Block's family members, said Mr. Block "participated in a scheme to inflate the value of the company" by "brazenly" making up numbers regarding a key accounting metric for non-traded real estate investment trusts, AFFO (or, adjusted fund from operation) per share.

"It's a serious set of crimes," Mr. Oetken said.

"I'm not exactly sure why he did it," he added. "What is clear is he knew better ... and should have known better."

At the same time, the judge said there were "mitigating" factors in the sentencing, including Mr. Block's clean criminal record prior to offense in question; a lack of "long-term fraudulent conduct over several years"; there being a likelihood that Mr. Block won't engage in criminal activity in the future; and Mr. Block's "personal history" as a good father and friend.

Mr. Block, who'd grown a beard since his trial this past summer, made a few remarks during the proceedings, expressing regret for the "heartache" he'd caused his family, and pleading for the judge not to separate him from his family, who "I love so much."

Mr. Block has a wife and three children.

(More: Painful end for advisers who bought RCAP shares.)

However, he did not express remorse for the crimes of which he'd been convicted in June: conspiracy to commit securities fraud and other offenses, securities fraud, and two counts each for making false filings to the Securities and Exchange Commission and submitting false certifications to the SEC.

"It is unbelievable to me today that I am here," Mr. Block said. "The conviction is "so at odds [with my character]," he added.

Earlier in the sentencing, a federal prosecutor said the 18-to-24-month "guideline sentence" — a baseline for determining a reasonable sentence — initially determined by Judge Oetken "seriously understates" the severity of Mr. Block's crime.

A contentious point during the hearing was the question of: Should the total shareholder monetary loss tied to the fraudulent AFFO-per-share figures be factored into the severity of the sentence?

The prosecution estimated that roughly $300 million in stock loss was attributable to this fraud, while the defense argued it was impossible to know how much of the drop in ARCP's stock price was directly attributable to the fudged AFFO number.

The judge said he suspected the government's monetary estimate "was probably about right," but ultimately didn't factor the aggregate loss into Mr. Block's sentence because it would require a degree of speculation on his part. Further, if the judge were to have taken into account the loss amount, Mr. Block would have served a life term — 105 years — which the judge didn't believe was reasonable for the severity of the crime.

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