Trust Execs Accused of Lying About Profits

     (CN) — The Securities and Exchange Commission claims two former executives misled investors by plugging in fake numbers to overstate the performance of a real-estate investment trust.
     The charges come almost two years after American Realty Capital Properties admitted errors on its registration statements prepared in connection with its sale of 138 million shares in May 2014, at $12 per share.
     Founded in 2010, the trust had 3,809 properties as of March 31, 2014, consisting of 101.8 million square feet of leasable space.
     The SEC says then-chief financial officer Brian S. Block and then-chief accounting officer Lisa P. McAlister conspired to manipulate the calculation of the trust’s adjusted funds from operations, or AFFO, figure, which is a measure of the trust’s net income and “its most important financial metric.”
     “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,” the SEC said in a statement.
     Through Block and McAlister’s fraud, the trust overstated its first quarter AFFO by $12 million out of a total of $147 million, according to an SEC lawsuit filed Thursday in Southern New York Federal Court.
     Both executives actively lied about the use of plugged numbers when queried about the change in AFFO numbers by the firm’s auditor and in-house counsel, the complaint states.
     Five months after the May 2014 offering brought in net proceeds of $1.59 billion, the trust announced on Oct. 29 that the forms it previously filed with the SEC should not be relied upon.
     Shares fell 36 percent in intraday trading to as low as $7.85 on Oct. 29, 2014. In the following two years, the trust’s share price never reached its pre-revelation price. Shares traded at $10.02 on Monday.
     In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Block and McAlister last week.
     American Realty also faces a shareholder class action based on the same fraud allegations. That complaint was filed in December 2014.

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