There are three possible solutions to your problem. The first is the most difficult and that would involve cutting the nails where they enter the wall using an auto body grinder. This is difficult because the nails are made of tempered steel, which are difficult to cut and once they are cut they will have to be ground smooth whether you add a finished wall or not. You can pound the nails into the concrete block wall until they are flush with that wall. The problem here is that the wall will not be airtight or watertight. The best solution is to rent a very large crowbar and remove the nails. Then fill the holes with caulking specially designed for concrete and masonry walls. This will make the wall both airtight and watertight.