The Housing Chronicles Blog: Fraud sleuth goes after Lennar's off-balance sheet finances

Saturday, January 10, 2009

Fraud sleuth goes after Lennar's off-balance sheet finances

Well before the housing boom really took off, many builders began structuring land deals into joint ventures and other deals off their balance sheets, which was a practice I thought had to eventually bite back in the end. Now former felon Barry Minkow -- famous for his ZZZ Best stock swindle of the 1980s -- has turned his attention and his Fraud Discovery Institute against public home builder Lennar. From a Wall Street Journal story:

Shares of Lennar Corp. plunged Friday after a high-profile investigator raised questions on a Web site about the home builder's off-balance-sheet debt and a large personal loan taken out by a top company executive...

In a written report and Web video, Mr. Minkow criticized Lennar's practice of putting large amounts of debt in off-balance-sheet joint ventures, saying there is insufficient disclosure about them to investors. Lennar has about $4 billion in off-balance-sheet debt through 116 joint ventures and has typically given very few details about these arrangements.

The builder's chief financial officer, Bruce Gross, said in an interview, "we have full disclosure on our joint-venture debt. There is nothing concealed."

Mr. Minkow is a convicted stock-fraud felon who was imprisoned for his role in masterminding the ZZZZ Best stock swindle in the 1980s. Since his release, Mr. Minkow has won kudos from the Federal Bureau of Investigation for uncovering frauds on the Internet, in the real-estate field and elsewhere. His recent effort to expose executives and directors who embellish their academic credentials has led to several resignations of high-level officials. Other campaigns against public companies have had mixed impact...

Mr. Minkow also accuses Lennar of perpetrating a "giant Ponzi scheme" in its land deal with the California Public Employees Retirement System that landed in bankruptcy court. He said Lennar moved other joint-venture assets into the venture, known as LandSource and depleted the venture of cash before it imploded amid the housing downturn.

Click here for full story and responses from Lennar. At least they responded (something I couldn't get them to do when writing a story on builder incentives for the L.A. Times in 2007).

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