SEC Obtains Final Judgment Against Former CFO of American Realty Capital Properties Inc.
Litigation Release No. 24046 / February 14, 2018
Accounting and Auditing Enforcement Release No. 3921 / February 14, 2018
Securities and Exchange Commission v. Brian S. Block, et al., No. 16 Civ. 7003 (LGS) (S.D.N.Y. filed Sept. 8, 2016)
The Securities and Exchange Commission announced that on February 8, 2018, the United States District Court for the Southern District of New York entered a final judgment against Brian S. Block, the former CFO of American Realty Capital Properties Inc. (ARCP), a publicly traded real estate investment trust (REIT) now known as VEREIT, Inc.
On September 8, 2016, the SEC charged Block with overstating the financial performance of ARCP by purposely inflating a key metric used by analysts and investors to assess the company. The SEC's complaint alleged that Block and then-chief accounting officer Lisa P. McAlister devised a scheme to manipulate the calculation of ARCP's adjusted funds from operations (AFFO), a non-GAAP measure used when the company provided earnings guidance. After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in ARCP's 2014 first quarter financial results, Block falsified the company's AFFO presentation in the final hours before filing the company's second quarter results. With McAlister in his office, Block entered fake numbers 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.
The SEC's complaint charged Block and McAlister with violating or aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as aiding and abetting violations of Exchange Act Section 13(a) and Rules 12b-20, 13a-11, and 13a-13. Block also was charged with violating Rule 13a-14 of the Exchange Act.
On the same day the SEC filed its complaint, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Block and McAlister based on the same conduct. A jury later convicted Block of fraud and related charges and he was subsequently sentenced to eighteen months' incarceration and a $100,000 fine. McAlister pled guilty to securities fraud and related charges, and she later consented to a final judgment in the SEC's case as well as to an SEC order suspending her from appearing or practicing before the Commission as an accountant.
Block consented to entry of the final judgment in the SEC's action, which imposed full injunctive relief, a $160,000 civil penalty, and a permanent officer and director bar. Separately, Block also consented to an SEC order suspending him from appearing or practicing before the Commission as an accountant.
The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the Public Company Accounting Oversight Board.
For further information, see Press Release No. 2016-180 (Sept. 8 2016).