The Securities and Exchange Commission (SEC) has charged two former accounting executives with overstating the financial performance of a large publicly-traded real estate investment trust (REIT) then known as American Realty Capital Properties (ARCP) by purposely inflating a key metric used by analysts and investors to assess the company.
According to the SEC’s complaint, then-chief financial officer Brian S. Block and then-chief accounting officer Lisa P. McAlister devised a scheme to manipulate the calculation of ARCP’s adjusted funds from operations (AFFO), a non-GAAP measure used when the company provided earnings guidance. After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in ARCP’s 2014 first quarter financial results, Block falsified the company’s AFFO presentation in the final hours before filing the company’s second quarter results. 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.
Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, said:
We allege that these senior executives conjured up numbers to purposely conceal ARCP’s true performance, misleadingly suggesting that the company had met AFFO estimates for the first and second quarters of the year.”
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