United States v. Block, 1:16-cr-00595

Defendant Brian Block, former CFO of American Realty Capital Properties (ARCP), is indicted on six counts alleging fraud related to Q2 2014 and YTD 2014 financial disclosures, including conspiracy, securities fraud, false statements, and false SEC certifications.
ARCP reported non-GAAP metrics FFO and AFFO; indictment alleges Block and others inserted inflated inputs into a spreadsheet used to calculate AFFO and AFFO per share to conceal a Q1 2014 shortfall and match guidance.
The alleged overstatement for YTD 2014 AFFO was about $13 million and roughly $0.03 per share (about 5% of AFFO per share) according to the indictment; Block disputes those calculations.
Block moved to dismiss the indictment (or strike portions) arguing due process violations, lack of standards for AFFO, and lack of materiality; he also sought a bill of particulars seeking greater specificity about co-conspirators and alleged fraudulent acts.
The Court treated the indictment allegations as true for the motion-to-dismiss standard, found the indictment sufficiently specific, and declined to dismiss or strike the challenged allegations at this stage.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether indictment violates due process for criminalizing misstatements of a non-GAAP metric	Government: statute covers willful material misstatements of any metric, GAAP or not	Block: unprecedented application to non-GAAP AFFO; no clear calculation standard	Denied — statute gives fair notice; prosecution of non-GAAP misstatements does not violate due process
Whether indictment fails to allege materiality of the alleged misstatements	Government: alleged quantitative (~5%) and qualitative factors (guidance, compensation linkage) satisfy materiality	Block: impact is smaller (<5%) and AFFO methodology is not standardized, so immaterial as a matter of law	Denied — alleged misstatement meets SAB No. 99 threshold and qualitative factors; materiality is a jury question
Whether portions of the indictment should be stricken as prejudicial surplusage	Government: paragraphs reflect its theory and will be relevant and admissible	Block: paragraphs misstate AFFO methodology and overstate impact, causing prejudice	Denied without prejudice — high bar to strike; disputes about accuracy are for trial
Whether Block is entitled to a bill of particulars identifying co-conspirators and details of the fraud	Government: indictment and voluminous discovery sufficiently specify charges and acts	Block: needs identities/details to prepare defense and avoid surprise	Denied — indictment sufficiently specific and discovery provided; particulars not necessary

United States v. Rigas, 490 F.3d 208 (2d Cir.) (criminal liability for misstatements of non-GAAP metrics)
United States v. Yannotti, 541 F.3d 112 (2d Cir.) (indictment need only track statute and give time/place in approximate terms)
United States v. Litvak, 808 F.3d 160 (2d Cir.) (materiality is fact-specific and generally for the jury)
Ganino v. Citizens Utils. Co., 228 F.3d 154 (2d Cir.) (materiality standard tied to reasonable investor)
United States v. Lanier, 520 U.S. 259 (U.S.) (due process notice principle for criminal statutes)
United States v. Mulder, 273 F.3d 91 (2d Cir.) (standard for striking surplusage from an indictment)
United States v. Bortnovsky, 820 F.2d 572 (2d Cir.) (purpose and limits of a bill of particulars)