Two former executives of American Realty Capital Properties were charged Thursday by the SEC for overstating the publicly traded real estate investment trust's performance in the first two quarters of 2014. The U.S. Attorney's Office for the Southern District of New York announced criminal charges against the pair in a parallel action Thursday.
The Securities and Exchange Commission complaint said that former Chief Financial Officer Brian S. Block and former Chief Accounting Officer Lisa P. McAlister inflated the firm's calculation of a key metric used by analysts and investors, the adjusted funds from operations, or AFFO, and falsified information before a 2014 earnings call after the miscalculation was revealed internally.
“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,” Sanjay Wadhwa, the SEC New York regional office's senior associate director, said in a statement.
The complaint seeks permanent injunctions, disgorgement plus interest and penalties, and barring them from serving as officers or directors. According to the firm's accounting personnel, the miscalculation caused ARCP to overstate its first-quarter AFFO by $12 million, or 3 cents a share on a per-share basis, out of 26 cents. The second-quarter overstatement was 1 cent per share. ARCP would not have met analyst consensus projections for those periods with accurate statements, the SEC complaint said.
At the time, the firm reported assets of $21 billion. The company was rebranded as VEREIT Inc. in 2015.
Both officers resigned in October 2014, and the earnings were restated in the 2013 annual report and filings for the first two quarters of 2014. VEREIT noted in its regulatory filings that it is cooperating with the SEC and criminal investigations.
The complaint is on the SEC's website.