NEW YORK CITY—The former CFO of American Realty Capital Properties, Brian Block, on Wednesday, was sentenced to 18 months in federal prison for overstating the company’s financial results. Prosecutors say Block’s fraud resulted in an intended overstatement of adjusted funds from operations by approximately $13 million in 2014.
Following a three-week trial, on June 30, a jury convicted Block of conspiracy to commit securities fraud, one count of securities fraud, two counts of making false filings with the SEC, and two counts of submitting false certifications along with required filings with the SEC.
Block’s co-defendant, former ARCP chief accounting officer Lisa McAlister, pled guilty to securities fraud and related charges the day before Block’s conviction.
In addition to the 18-month prison term, US District Judge J. Paul Oetken sentenced the 45-year-old of Hatfield, PA to three years of supervised release, and a $100,000 fine. Restitution will be determined at a future date.
“Block, the CFO of a major REIT, deliberately cooked the books to mislead investors and the SEC,” said Joon H. Kim, the Acting US Attorney for the Southern District of New York. Kim further stressed that the markets depend upon investors’ abilities to rely upon the truthfulness of corporate officers reporting on the financial health of publicly-traded companies.
The attorney general’s office asserts that prior to filing financial statements for the second quarter of 2014, another employee explained to Block, McAlister and others, that the method used by ARCP to calculate adjusted funds from operations in the first quarter of 2014 and in certain previous quarters resulted in erroneously inflated numbers. Yet Block took no steps to advise the the board of directors’ audit committee or outside auditors.
Block continued to use the same misleading calculations in Q2. The fraudulent numbers used to inflate the AFFO had no basis in fact, had no documentary support, and did not comply with the company’s general ledger accounting system. Plus, Block falsely certified the integrity and honest accuracy of the filings.
The crimes of which he was convicted each carry a maximum sentence of 20 years, with the exception being the conspiracy charge, having a five-year maximum sentence.
However, as reported in Investment News, Judge Oetken cited mitigating factors in the sentencing. Block had no criminal record prior to this case; and had not engaged in “long-term fraudulent conduct over several years.” The judge assessed a strong likelihood that Block would not engage in criminal activity in the future; and noted his personal history as a good father and friend.