Acting U.S. Attorney Joon H. Kim announced Wednesday the former chief financial officer of VEREIT, formerly known as American Realty Capital Properties, was sentenced to 18 months in prison for accounting fraud.
Forty-five-year-old Brian Block of Hatfield, Pennsylvania inflated a key metric used to evaluate the financial performance of publicly traded real estate investment trust in American Reality Capital Partners’ filings with the U.S. Securities and Exchange Commission, according to court documents.
As a real estate investment trust, American Realty Capital Partners measured its financial performance through metrics in addition to or besides traditional measurements of company performance that is calculated utilizing Generally Accepted Accounting Principles (GAAP).
American Reality Capital Partners reported to the adjusted funds from operations, the investing public a non-GAAP measure, which was designed to more accurately reflect the company’s financial performance and cash flow.
Block, Lisa McAlister and others learned that the method utilized by American Realty Capital Partners to calculate adjusted funds from operations in the first quarter of 2014 and in previous quarters were falsely inflated through another employee prior to the filing of form 10-Q. No alterations were made to the First Quarter 10-Q, resulting in the reported adjusted funds from operations per share calculation being overstated by about $0.03 per share.
Block did not advise the Audit Committee of American Reality Capital Partners’ Board of Directors or outside auditors of the error. Block and McAlister also utilized the same misleading calculation in American Reality Capital Partners’ second quarter 10-Q. The fraud resulted in an overstatement of adjusted funds from operations by nearly $13 million.
In addition to the 18-month prison term, Block was ordered to pay a $100,000 fine and restitution, which will be determined at a future date.
Click here to read the full release.