Lennar Corporation: Fraud in Progress?

Today Barry Minkow and the Fraud Discovery Institute released a lengthy report about Lennar Corporation (NYSE:LEN), the nation’s second largest homebuilder. It’s apparent that the company has a certain way of doing business, and it’s not pretty.

There is a video accompanying the report, which is featured on a new website about the company: www.Lenn-ron.com. (The URL is in honor of the company’s similarities to Enron.)

The report features the Top 10 Red Flags for Fraud at Lennar:

1. Robert Venneri, through his company Canyon Finance gave a $5 million “loan” to Lennar COO Jonathan Jaffe secured in third place on Jaffe’s home. But the home is not worth that much, and the “loan” was given well into the housing crisis. Makes you wonder if it wasn’t really a “loan” at all, but a payment of some other sort. The “loan” is also curious because another Venneri-owned company, GulfStream Finance, is the lender and secured party for a loan taken out by SunCal, a company which owes Lennar $22 million. Could this be a related-party transaction that wasn’t disclosed in SEC filings?
2. Lennar has a well-established history of attacking and descrediting the messenger in cases, actively trying to damage the credibility of witnesses and evidence in advance of legal maneuverings.
3. Cash is king at Lennar. And the company recently added to its stash of cash by refusing to pay joint venture partners the money due to them.  This goes beyond not paying the partners their “share” of the profits on projects. Lennar even refuses to pay back their initial capital contributions to projects.
4. Disclosures in SEC filings about legal matters are inadequate. Lennar is literally involved in hundreds of lawsuits with hundreds of millions of dollars on the line, yet discloses next to nothing about legal proceedings. Not material, says Lennar.
5. Lennar manipulates its finances in several ways: Improperly using capital contributions from one joint venture partner to fund other projects; Manipulating the financial statements of individual projects until they meet a desired target.
6. The company’s financial position is worse than the financials would suggest. The company aggressively uses off-balance sheet arrangements which have significant debt. At August 31, 2008, Lennar had $4.6 billion of liabilities on its balance sheet. The joint ventures had another $4.7 billion of debt. That total debt load is massive. And although the accounting rules permit Lennar to handle debt and reporting in this way, the total debt level is still troublesome, and the use of off-balance sheet financing has been used by other companies to conceal debt.
7. Low quality Chinese drywall was used in a number of Lennar homes. This could be indicative of a “cut costs any way you can” attitude, without regard for promises made to customers.
8. The way Lennar moves money between joint ventures without regard for what is permissible under agreements with joint venture partners has essentially created a giant Ponzi scheme. Lennar is constantly looking for new partners with new capital, which can then be shifted to other projects as necessary.
9. Hundreds of people would have to be wrong or lying about their claims against Lennar for Lennar to be “right” in all of these situations.
10. Either all these things are true…. or they are not. But the evidence is compelling.

Related posts:

1. Lennar Corporation (NYSE:LEN) confirms fraud allegations; debunks own lies
2. Lennar CEO responds to Barry Minkow and Fraud Discovery Institute
3. Lennar CEO Stuart Miller: Transparency? Or lies?
4. Lennar CEO lies about losses in joint venture
5. New Lennar Analysis: 72% chance of bankruptcy