lawsuit photoFormer finance head of American Realty Capital Partners, now known as Vereit, charged with committing accounting fraud. Brian Block, CFO of the real estate investment company used an inflated metric that didn’t comply with GAAP.
The metric in question is adjusted funds from operations or AFFO, which is used to reflect cash flow by excluding non cash transactions like depreciation and amortization and other one item items. According to the case, Block and former head of accounting Lisa McAlister (who has already pleaded guilty to one count of conspiracy to commit securities fraud and other offenses in June) were made aware before the release of 2014 Q2 earnings that the method used to calculate AFFO was erroneously inflated. But the two along with another employee, didn’t address the issue and also didn’t change the methodology for previous or future filings. The case alleges that this led to misleading the investors into believing that the company is on track to meet its full year guidance.
Moreover, even though Block had knowledge of a material error in American Realty’s SEC filings, he did not let the Audit Committee know or the outside auditors of the company. He also did not address the issue in the subsequent filings of the company.
Knowledge is definitely power, especially when it comes to knowledge of fraud!