Securities Cases: Jury Renders Guilty Verdict in Ex-ARCP CFO Brian Block’s REIT Fraud Trial & Witnesses Testify Against Ex-Hedge Fund Manager Martin Shkreli

A federal jury has found ex-American Realty Capital Properties (ARCP) Inc. CEO Brian Block guilty of securities fraud, conspiracy to commit securities fraud and other offenses, and of submitting false certifications and filings to the US Securities and Exchange Commission. Block was convicted of overstating the adjusted funds from operations (AFFO) at the real estate investment trust. Following the rendering of the verdict in the REIT fraud case, a lawyer for Block said that his client plans to appeal.

According to the US Department of Justice, an employee notified Block, as well as then-accounting chief Lisa McAllister about the funds overstatement before the first quarter results were publicly released in 2014. However, neither of them reported the error to auditors or to the REIT’s board. Prosecutors contend that Block tried to cover up the incorrect figures in financial reports for the second quarter.

The Wall Street Journal, which reviewed ARCP’s filings, reports that during 2014’s first quarter, McAlister and Block overstated the AFFO by over $12M and by about $10.9M during the next quarter. McAlister pleaded guilty to securities fraud and other criminal charges last year.

American Realty Capital was once a Nicholas Schorsch company. Schorsch is no longer on the board. American Realty is now called Vereit Inc.(VER).

Testimony is Now Underway in Hedge Fund Fraud Case
In another high profile securities fraud trial, a judge is ordering former hedge fund manager and pharmaceutical CEO Martin Shkreli to stop talking to the media about his criminal case. Prosecutors sought a gag order against the defendant after he spoke to reporters in the courtroom and attacked one government witness’s credibility. He also spoke to a reporter outside the courthouse.

Opening statements and witness testimonies are finally underway in the trial after three days of jury selection. Many potential jury candidates were dismissed, some because they already thought negatively of Shkreli, who caused an uproar several years ago when he raised one drug’s price by 5,000% while CEO of Turing Pharmaceuticals.

Shkreli is currently on trial for hedge fund fraud involving his funds MSMB Healthcare, Elea Capital, and MSMB Capital. Prosecutors believe that Shkreli lied to hedge fund investors, hid massive trading losses, and paid investors back with millions of dollars stolen from Retrophin, a company in which he also served as CEO, in a Ponzi-like fraud. Meantime, investors were bilked of over $11M.

This week, a Merrill Lynch salesman testified about finding out in 2011 that MSMB Capital could not cover a short trade involving millions of Orexigen Therapeutics (OREX) shares. The inability of the hedge fund to cover the short trade, despite assurances that it could, left the firm with a $7M loss.

Also testifying against Shkreli was Dallas-based hedge fund investor Darren Blanton. He talked about discovering that the administrator who supposedly worked for MSMB Capital in fact did not.

Securities Fraud Cases
At The SSEK Partners Group, our securities fraud law firm works with investors in seeking to recover losses they’ve sustained from being bilked by brokers, hedge fund managers, and others. Contact us today.

ARCP Ex-CFO Brian Block guilty of securities fraud, InvestmentNews, June 30, 2017

Former REIT CFO’s Criminal Trial is Under Way, Institutional Investor Securities Blog, June 20, 2017

‘Pharma bro’ Martin Shkreli has been barred from discussing his trial around the courthouse after prosecutors asked for a gag order, Reuters/Business Insider, July 5, 2017
Merrill Lynch salesman describes shock, anger after Shkreli lost $7 million for Merrill on short trade and then threatens firm if it tries to collect, CNBC, July 5, 2017