American Realty Capital's former CFO has been charged with orchestrating an accounting fraud that overstated a key metric by roughly $13 million in 2014, according to the U.S. Attorney’s office.

American Realty was part of the former business empire once run by Nicholas Schorsch, which included REITs as well as independent broker-dealer Cetera. RCS Capital, the parent company of Cetera, cut its ties with Schorsch after filing for bankruptcy earlier this year.

(Bloomberg News)
(Bloomberg News)

Brian Block was arrested at his home in Hatfield, Pennsylvania, Thursday morning, according to a statement from Manhattan U.S. Attorney Preet Bharara. Block and Lisa McAlister, the company's former chief accounting officer, are accused of overstating American Realty's income by $12 million.

Block, 44, faces as many as 20 years in prison if convicted of the most serious charges against him.

"All market investors are entitled to be told the truth from publicly traded companies when those investors are making decisions about where to invest their funds," Bharara said in a statement. "And when investors are lied to about material information, as is alleged to have happened here, the perpetrators need to be investigated and prosecuted."

(Bloomberg News)
Manhattan U.S. Attorney Preet Bharara charged American Realty Capital's former CFO with orchestrating an accounting fraud that overstated a key metric by roughly $13 million in 2014. (Bloomberg News)

McAlister, 52, pleaded guilty in June and is cooperating with the government, according to authorities. Both Block and McAlister were sued Thursday by the SEC.

The SEC alleges that the two executives manipulated the calculation of American Realty's adjusted funds from operations. AFFO was a non-GAAP accounting measure that the company used to provide earnings guidance.

The regulator says that Block received warnings from the company's accounting staff that an incorrect method was used to calculate the figure in American Realty's 2014 first quarter earnings. However, in the hours just prior to filing the company's second-quarter results, Block falsified the numbers in American Realty's presentation, the SEC charges.

"With McAlister in his office, Block plugged in 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 commission said in a statement.

Block is charged with conspiracy, securities fraud and making false filings with the SEC.

McAlister and Block were not immediately available for comment.

"These charges against Brian Block are entirely unwarranted," Reid Weingarten, an attorney for Block, said in a statement. "We are very disappointed that the government, after a two-year investigation, has decided to charge Brian. He is completely innocent and will be exonerated in court."

McAlister's attorney was not available for comment.

American Realty is now known as Vereit.

With additional reporting from Bloomberg.