US authorities on Thursday unveiled criminal charges against two former American Realty Capital Properties Inc finance officers in connection with a 2014 accounting scandal that wiped out roughly $4 billion of market value.
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The former finance head of real-estate investment company American Realty Capital Partners committed accounting fraud when he used a metric that didn’t comply with Generally Accepted Accounting Principles and inflated the company’s results, authorities said Thursday.
The fraud allegedly occurred in 2014, when VEREIT was called American Realty Capital Partners. McAlister pled guilty to her crimes and is cooperating with the government.
The securities fraud, false filings charges, and false certification charges each carry a maximum prison term of 20 years. RCS Capital, the parent company of Cetera, cut its ties with Schorsch after filing for bankruptcy earlier this year.
“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”.
The defendants were accused of scheming to manipulate American Realty’s adjusted funds from operations (AFFO), a key financial metric, in the first half of 2014. After the firm’s internal accounting staff warned that an incorrect method had been used to calculate the company’s adjusted funds from operation, Mr. Block falsified the measure to hide the overstatement in the firm’s second-quarter results that year, according to the filings made by the SEC and federal prosecutors.
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. “When investors are lied to about material information, as is alleged to have happened here, the perpetrators need to be investigated and prosecuted”. “Moreover, Block, McAlister, and [another employee] then knowingly facilitated the use of the same materially misleading calculations in” later filings.
“We allege that these senior executives conjured up numbers to purposely hide ARCP’s true performance, misleadingly suggesting that the company had met AFFO estimates for the first and second quarters of the year”, said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.
McAlister’s lawyer, Dwight Bostwick, declined to comment.
The cases are U.S. v Block, U.S. District Court, Southern District of New York, No. 16-cr-00595; and SEC v Block et al in the same court, No. 16-07003.
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With additional reporting from Bloomberg.
