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United States v. Block

United States District Court, S.D. New York

April 28, 2017

UNITED STATES
v.
BRIAN BLOCK, Defendant.

          OPINION AND ORDER

          J. PAUL OETKEN United States District Judge

         Defendant Brian Block is charged in a six-count indictment with offenses relating to his allegedly fraudulent preparation of financial statements for American Realty Capital Properties (“ARCP”), a real estate investment trust (“REIT”) for which he served as Chief Financial Officer (“CFO”). (Dkt. No. 1 (“Indictment”).) Before the Court are two pre-trial motions filed by Block, the first seeking to dismiss the indictment in its entirety or in the alternative to strike portions of it, and the second seeking a bill of particulars. The Court heard oral argument on the motions on April 19, 2017. For the reasons that follow, the motions are denied.

         I. Background

         Block served as CFO of ARCP, which is a publicly traded REIT with a portfolio invested primarily in commercial real estate. (Indictment ¶¶ 1-5.) ARCP, as is common among REITs, did not own the real estate directly; rather, the real estate was held by a subsidiary operating partnership (the “OP”), and ARCP owned 97% of the OP's common stock, while the remaining 3% was held by outside shareholders with non-controlling interests. (Indictment ¶ 11.)

         ARCP's quarterly financial disclosures included-among other information-two financial metrics, Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”), neither of which is defined by GAAP but both of which are common metrics in the real estate industry. FFO is calculated based on net income, with adjustments for gains or losses from sales of property, depreciation and amortization, and unconsolidated partnerships and joint ventures. (Dkt. No. 28 at 5.) AFFO further adjusts FFO to account for one-time expenses, though its calculation methodology is less consistently defined. (Id. at 6.)

         Block served as CFO of ARCP in the first and second quarters of 2014. (Indictment ¶ 10.) The Indictment alleges that he participated in a fraudulent scheme to falsely inflate AFFO and AFFO per share in in ARCP's public filings for the second quarter of 2014 (“Q2 2014”) and the first half of 2014 (“YTD 2014”). (Id.) The Indictment claims that Block inflated these figures so that they would be consistent with ARCP's AFFO guidance and to conceal errors made in the first quarter of 2014 (“Q1 2014”). (Id.) The impact of the misstatement on YTD 2014 AFFO was approximately $13 million, and on YTD 2014 AFFO per share was approximately $0.03, or 5% of total AFFO per share. (Id. ¶ 11.)

         The Indictment, which was unsealed on September 8, 2016, charges Block with six counts. (Id. ¶¶ 26-40.) Count One charges Block with conspiracy to commit securities fraud to make false filings with the SEC and to falsify the books and records of ARCP. Count Two charges Block with securities fraud. Counts Three and Four charge Block with making false statements in filings with the SEC. Count Five charges Block with filing a false certification with the SEC. And Count Six charges Block with filing a false certification with the SEC.

         Block moves to dismiss all counts against him or, in the alternative, to strike portions of the Indictment. (Dkt. No. 27.) Block also moves for a bill of particulars. (Dkt. No. 23.)

         II. Discussion

         The Court first considers Block's motion to dismiss and strike and next addresses his motion for a bill of particulars.

         A. Motion to Dismiss and Strike

         Block argues that the Indictment should be dismissed because it violates due process and because it fails to adequately allege that his misstatements were materially false or misleading. In the alternative, he argues that portions of the indictment should be stricken.

         1. Motion to Dismiss

         On a motion to dismiss under Federal Rule of Criminal Procedure 12(b), the Court accepts the allegations in the indictment as true and may not consider the sufficiency of the evidence. United States v. Alyenikov, 737 F.Supp.2d 173, 176 (S.D.N.Y. 2010) (citing United States v. Velastegui, 199 F.3d 590, 592 n. 2 (2d Cir.1999); United States v. Perez, 575 F.3d 164, 166 (2d Cir. 2009)).

         Rule 7(c) provides that the indictment “shall be a plain, concise and definite written statement of the essential facts constituting the offense charged.” Fed. R. Crim. P. 7(c). It is well established that “an indictment need do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime.” United States v. Yannotti, 541 F.3d 112, 127 (2d Cir. 2008) (quoting United States v. Alfonso, 143 F.3d 772, 776 (2d Cir. 1998)). “An indictment is sufficient when it charges a crime with sufficient precision to inform the defendant of the charges he must meet and with enough detail ...


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