Former Nicholas Schorsch firm CFO found guilty of accounting fraud
A key executive in the crumbled business empire of former RCS Capital boss Nicholas Schorsch was found guilty of securities fraud, false securities filings and conspiracy.
Former American Realty Capital Properties CFO Brian Block faces up to decades behind bars after a jury in New York reached the verdict Friday. Federal prosecutors accused Block in September of distorting the publicly traded REIT’s value by inflating a key earnings measure by about $13 million in 2014.
Prosecutors have not filed criminal charges against Schorsch, though he and Block have been hit with many civil lawsuits. RCS Capital, the onetime parent of Cetera Financial Group, fell into bankruptcy in 2016.
Investigators said Block and another ARCP executive, Lisa McAlister, falsely boosted the firm’s adjusted funds from operations by 3 cents a share in the second quarter of 2014. The company included the non-GAAP accounting metric in its earnings and it figured in Block’s incentive pay, according to investigators.
McAlister, who pleaded guilty to securities fraud last June, testified as a witness during Block’s three-week trial. The jury found Block guilty of all six counts prosecutors filed against him.
“This trial revealed that when it looked like ARCP would not meet investors' expectations, Block made up numbers and fudged the books,” Joon Kim, acting U.S. attorney for the Southern District of New York, said in a statement.
“The integrity of our markets rests on the truth of the financial information provided to investors. And those like Block who lie and manipulate the markets must be identified and held to account.”
‘HOPING FOR A DIFFERENT VERDICT’
Block had denied any role in the scheme. His lawyer, Mike Miller, told Reuters that he plans to appeal the conviction.
"We were hoping for a different verdict," Miller said. "We still believe Brian Block is innocent.”
Jurors found Block guilty of two counts of submitting false filings to the SEC, two counts of submitting false certifications with the filings, one count of securities fraud and one count of conspiracy. The first four counts carry a maximum prison term of 20 years, while conspiracy could yield up to five years.
The SEC also charged McAlister and Block with securities violations in September. American Realty, which now operates as Vereit and is based in Phoenix, is cooperating with federal probes, The Wall Street Journal reported. Pension plans, asset managers, creditors and investors have since filed suit against Schorsch, Block and others.