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Reader LGS sent this in:

Remember that odd transaction with the Lennar-affiliated LLC that you noticed over at the Santee property?  I’m now beginning to wonder if my theory about it was indeed correct:  that by “selling” the homes at asking prices to affiliated LLCs, with less stringent reporting requirements, they are moving things off their balance sheet.  In any event, someone doesn’t like what they’re doing somewhere—116 off-balance sheet joint ventures?  One has to at least ask what the legitimate business purpose for the arrangements are, if any.

LGS and I had picked up on Lennar’s transferring of properties to LLCs, and apparently we’re not the only ones.  The Wall Street Journal checks in today with a story about it:

http://online.wsj.com/article/SB123155084225070187.html

An excerpt:

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.

In some cases, Mr. Minkow has sought to profit from his investigations by betting on a decline in the target company’s stock, through buying put options. In the case of Lennar, Mr. Minkow says he has no such option position, but instead is being paid a fee by an unnamed client.

In his report, Mr. Minkow takes aim at a $5 million loan taken out by Lennar’s chief operating officer, Jon Jaffe, in 2007. He claims that Mr. Jaffe obtained the loan from a California real-estate broker who has done business with a Lennar business partner and that the broker also has made a big profit on property adjacent to a Lennar development.

Mr. Jaffe denied that Lennar had business dealings with the broker who extended the loan. Mr. Jaffe said he took out the loan to pay for renovations on his six-bedroom, ocean-front home in Laguna Beach, Calif., recently appraised for $18 million. “My loans on my home had nothing to do with Lennar,” Mr. Jaffe said.

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.

Mr. Gross denied that Lennar controlled other assets that were rolled into the LandSource venture. He said they were contributed by Lennar’s partner in the deal, MW Housing Partners, a Calpers investment vehicle, as part of its overall $970 million investment.

(Disclosure: Lennar was my pick in Robert’s contest of guessing the first builder to go bankrupt)

Posted on Saturday, January 10th, 2009 at 8:07 AM in Builders, Fraud | 4 Comments » |  Email |  Print You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.