MIAMI, Jan. 12 /PRNewswire-FirstCall/ -- The dissemination of false
statements about our company last Friday resulted in the selling of an
unprecedented 58 million shares of Lennar Corp. (NYSE: LEN; LEN.B) stock and a
20 percent decline in our stock price. This has prompted numerous inquiries
from investors, analysts and the media.
While it is not Lennar's practice to respond to false and scurrilous
allegations in the context of litigation, Lennar has a responsibility to its
shareholders and the public to respond to their legitimate requests for
information. Therefore, Lennar today is providing information pertaining to
the personal home loans of its chief operating officer, its outstanding joint
ventures and its pending litigation.
In the event that additional false information leads to new investor
inquiries, we will continue to respond. In addition, we intend to take
appropriate action against the responsible parties.
To protect our investors, the information we are disclosing today confirms
-- Lennar's chief operating officer, Jon Jaffe, did not receive a mortgage
on his home or any other indebtedness connected to the company.
-- Lennar never "treated its joint ventures like a Ponzi scheme."
-- Lennar has never siphoned cash from one joint venture to another.
-- Lennar has never pledged its interest in any joint venture for the
benefit of another.
-- Lennar's litigation is accurately reported and reserved for in
accordance with generally accepted accounting principles.
-- Lennar never has used lawsuits as a mechanism for avoiding cash
-- LandSource was an arm's-length transaction involving large financial
institutions that fully reviewed, vetted and appraised the terms of the
-- No money was ever misdirected in The Bridges project.
-- Lennar's co-member in The Bridges, Nicolas Marsch III, has received the
benefit of more than $50 million, notwithstanding statements to the contrary.
-- There have been no reports of any whistleblower complaints concerning
these matters to Lennar management, the Board of Directors, independent
auditors or an outside employee hotline.
-- Lennar has extensive confidential procedures in place to ensure the
free flow of communication by whistleblowers and to ensure their protection
-- Lennar never ordered imported drywall from China and never received a
discount for its use as a substitute material.
-- Lennar has been cited by the media as "the most responsive builder" in
dealing with the industry wide issue of imported drywall.
JON JAFFE'S LOAN
Senior executive Jon Jaffe's personal loan has nothing to do with Lennar.
Jon's loan was obtained from sources wholly independent from Lennar and with
no assistance from Lennar or any of its business partners. There is not one
point of connection between Jon's loan and Lennar's business.
Here are the facts:
In September 2007, Jon obtained a $5 million line of credit secured by
Jon's personal residence. Jon obtained the loan from an independent loan
broker named Robert Venneri and his company Canyon Finance Inc. Neither Jon
nor Lennar is associated with Mr. Venneri, Canyon Finance or any other company
owned by Mr. Venneri. Mr. Venneri has a California real estate broker's
license, as did Canyon Finance, which later transferred its license to
Gulfstream Finance, also owned by Mr. Venneri. These brokers' licenses
permit the making of loans secured by real estate.
Jon was referred to Mr. Venneri by Jon's personal attorney, who has never
had a relationship with Lennar. The loan Mr. Venneri placed for Jon was the
first and only time Mr. Venneri has done so for anyone employed by Lennar. No
part of the loan secured by Mr. Venneri for Jon came from funds provided
directly or indirectly by Lennar. The funds were sourced from a lender
unrelated to Lennar.
Mr. Venneri also secured loans for Bruce Elieff, a SunCal employee. Mr.
Venneri has informed us that Mr. Elieff's loans were sourced from a different
lender than Jon's loan and had nothing to do with Jon's loan or Lennar.
Neither SunCal nor Mr. Elieff played any role in connection with Jon's loan.
Mr. Venneri has a real estate development company called Canyon Capital,
Inc., which acquired, developed and marketed real estate properties in Kern
County. There is no connection between these properties and Jon's loan or
Lennar, nor is there a connection to SunCal. Likewise, there is no connection
between Frank and Norma Fugitt or John Balfanz and Jon or Lennar. Also,
Lennar has never been a joint venture partner with SunCal on any properties in
Jon's $5 million line of credit was fully secured by a third mortgage on
Jon's house. The loan comes due in September 2012, accrues simple interest
at the rate of 8% per annum, and requires quarterly interest payments. Jon
has made all such payments. By any measure, the loan was made on the basis of
conservative underwriting guidelines. There was substantial equity in Jon's
house to fully secure the loan. At the time of the loan, the house was
appraised at $18 million by an independent appraiser on behalf of the lender.
The first mortgage was for $3 million; the second mortgage was a line of
credit for $2.1 million. Together with the $5 million loan, the total equaled
$10 million, a loan-to-value ratio of 55%.
Consistent with Jon's full commitment to and confidence in Lennar and its
future, he made use of the loan to increase his ownership of Lennar's stock.
To date, Jon has drawn down $4 million of the $5 million line. Jon drew down
$3 million in November 2007 and used $1,562,560 of these funds to pay for the
exercise of options on Lennar stock and the associated income tax. Jon
acquired 107,858 shares of "A" shares at $8.235 per share and received 10,785
shares of "B" shares. The market price of the stock at the time was $21.33 per
share. The remaining funds were used to reduce the balance of Jon's brokerage
account which at that time held 395,791 "A" shares and 48,151 "B" shares. As
of this date Jon has 442,243 "A" shares and 48,151 "B" shares in this
brokerage account. Jon has consistently retained the Lennar shares he has
acquired in recent years. In April 2008, Jon drew down $1 million to acquire a
passive investment in a technology company unrelated to Lennar.
Documents relating to Jon Jaffe's loan are available at:
Lennar strategically invests in unconsolidated entities that acquire
assets used in its homebuilding operations. Through these entities, Lennar
primarily seeks to reduce and share its risk by limiting the amount of its
capital invested in land, while obtaining access to potential future homesites
and allowing it to participate in strategic ventures. Participants in these
joint ventures are land owners/developers, other homebuilders and financial or
Lennar has included extensive financial disclosure regarding its JVs on
its quarterly conference calls with analysts and investors and in its SEC
filings. Since Lennar has not yet filed its Form 10-K for fiscal 2008 that is
due at the end of January 2009, Lennar has provided below preliminary
information for fiscal 2008 and 2007. Lennar will be working with analysts
and investors in the coming weeks to provide additional information regarding
its joint ventures. Some other facts regarding its joint ventures are as
-- Each joint venture is governed by an executive committee consisting of
members from all of the partners.
-- Lennar does not use its investment in one JV as collateral for debt in
-- There is no cross collateralization of debt between different
-- Funds are never commingled among Lennar's JVs.
-- The financial position of Lennar's joint ventures is comprised of
substantial equity totaling $2.7 billion.
-- Lennar's aggregate equity investment in its unconsolidated joint
ventures is 29%, compared to its partners' equity of 71%.
-- The joint venture debt is secured by joint venture real estate assets
that are adjusted for impairment on a quarterly basis as necessary.
-- The debt financing of Lennar's JVs is primarily non-recourse; in other
cases, Lennar and its other partners agree to provide a guarantee.
-- Lennar's maximum recourse exposure related to unconsolidated JVs with
recourse debt is $520 million. In these ventures, there are $2.8 billion of
assets and $1.3 billion of equity.
-- Lennar's consolidated financial statements are audited annually and
reviewed quarterly by a top-tier, independent registered public accounting
As of November 30, 2008, Lennar had equity investments in 116
unconsolidated entities, compared to 214 unconsolidated entities on November
30, 2007. Summarized financial information on a combined 100% basis related
to unconsolidated entities in which Lennar had investments that are accounted
for by the equity method was as follows:
Cash and cash equivalents $ 135,081 301,468
Inventories 7,115,360 7,941,835
Other assets 541,984 827,208
Liabilities and equity:
Accounts payable and other liabilities $1,042,002 1,214,374
Debt 4,062,058 5,116,670
Lennar 766,752 934,271
Others 1,921,613 1,805,196
Total equity of unconsolidated entities 2,688,365 2,739,467
Lennar's equity in its unconsolidated entities 29% 34%
Debt to total capital of Lennar's unconsolidated entities is calculated as
(Dollars in thousands)
Debt $4,062,058 5,116,670
Equity 2,688,365 2,739,467
Total capital $6,750,423 7,856,137
Debt to total capital of Lennar's
unconsolidated entities 60.2% 65.1%
Debt to total capital of Lennar's
unconsolidated entities (excluding LandSource) 49.8% 61.1%
The total debt of the unconsolidated entities in which Lennar has
investments was as follows:
Lennar's net recourse exposure $ 392,450 794,934
Reimbursement agreements from partners 127,428 238,692
Partner several recourse 285,519 465,641
Non-recourse land seller debt or other debt 90,519 202,048
Non-recourse debt with completion guarantees 820,435 1,432,880
Non-recourse debt without completion guarantees 2,345,707 1,982,475
Total debt $4,062,058 5,116,670
The summary of Lennar's net recourse exposure related to the
unconsolidated entities in which it has investments was as follows:
Several recourse debt-repayment $ 78,547 123,022
Several recourse debt-maintenance 167,941 355,513
Joint and several recourse debt-repayment 138,169 263,364
Joint and several recourse debt-maintenance 123,051 291,727
Land seller debt recourse exposure 12,170 -
Lennar's maximum recourse exposure 519,878 1,033,626
Less joint and several reimbursement
agreements with Lennar's partners -127,428 -238,692
Lennar's net recourse exposure $392,450 794,934
The recourse debt exposure in the table above represents Lennar's maximum
exposure to loss from guarantees and does not take into account the underlying
value of the collateral.
Although Lennar, in some instances, guarantees the indebtedness of
unconsolidated entities in which it has an investment, its unconsolidated
entities that have recourse debt have a significant amount of assets and
equity. The summarized balance sheets of its unconsolidated entities with
recourse debt were as follows:
Assets $ 2,846,819 3,220,695
Liabilities 1,565,148 2,311,216
Equity 1,281,671 909,479
During the past decade, Lennar has delivered more than 250,000 homes. The
construction of those homes resulted in tens of millions of underlying
payments and contracts. In that context, as of November 30, 2008, Lennar was
defending or prosecuting approximately 620 lawsuits that fall into the
following categories: homeowner construction, premises liability, personal
injury, contract and subcontract disputes, employment, environmental and land
use, insurance coverage, advertising, collections, intellectual property,
automobile liability, tax matters and others. Reserves for litigation matters
are established and adjusted consistent with the guidelines set forth in
Financial Accounting Standards No. 5 (Reserves for Loss Contingencies) and
audited by Lennar's outside independent accounting firm.
THE BRIDGES LAWSUIT
This is a lawsuit filed in 2006 by Nicolas Marsch concerning The Bridges
project in San Diego County, California. Contrary to the allegations, Lennar
did not divert a $37.5 million judgment contributed by Marsch to the venture.
Lennar and Marsch had a 50-50 interest in the judgment, and no part of the
judgment or proceeds from the judgment was misdirected.
The proceeds were used by and for the benefit of the venture to pay for
construction and operation costs. Marsch and his advisors attributed zero
value to the judgment and achieved tax benefits from this position.
Contrary to the allegations, Marsch has received significant proceeds from
the Bridges venture. To date, payments made to or on his behalf exceed $50
Also contrary to the allegations, Lennar has provided substantial
information from inception. Lennar regularly provided balance sheets and
reports to Marsch for more than 10 years, in addition to annual financial
statements audited by an outside independent accounting firm.
Lennar has never pledged The Bridges' assets for the obligations of any
other joint venture. Nor does The Bridges have a "bankrupt partner" as a
result of the LandSource bankruptcy.
Marsch has been involved in several lawsuits with Lennar. In 2006, Marsch
also filed another lawsuit against Lennar in connection with a different
project in San Diego. That case was ordered dismissed in its entirety by the
California court in November 2008 without a trial.
In 2003, Lennar and others formed LandSource to acquire and hold various
real estate interests. In February 2007, Lennar reduced its interest from 50%
to 16%. In June 2008, LandSource filed bankruptcy as a result of the collapse
of the real estate market.
The claim that Lennar caused the other investors and lenders to lose
approximately $1 billion in connection with LandSource is false. The
LandSource bankruptcy is a matter of public record with complete financial
disclosures. The lenders and investors are large institutional entities who
conducted their own extensive due diligence with the aid of independent
experts. The LandSource bankruptcy was the product of unprecedented market
Lennar has never specified imported drywall from China for installation in
its homes and never received a discount when it was substituted for domestic
products. Lennar has been working diligently with its homeowners in an effort
to address this industry-wide defective product issue. In part, these efforts
are reflected in today's Wall Street Journal article concerning Chinese
drywall in Florida. On Sunday, the Sarasota Herald-Tribune characterized
Lennar as "[t]he most responsive builder so far" on the issue of Chinese
drywall. In addition, Lennar fully intends to seek remedies from the
manufacturer and other responsible parties.
Lennar has created two mechanisms for the public, investors, associates
and other interested parties to communicate their concerns directly to the
company's Board of Directors. First, Lennar has retained an independent firm,
The Network, to receive complaints anonymously and report those complaints
directly to the Audit Committee of the Board of Directors, in addition to
management. The Audit Committee receives a report of the investigation of
each communication submitted.
In addition, Lennar provides an email address which can be used to
communicate directly with the independent members of the Board of Directors.
Our Lead Director, who is also the chairperson of the Independent Directors
Committee, receives all messages sent to this email address. Both of these
reporting systems are described in our annual proxy statement, and are
regularly communicated to our associates. These reporting systems have been
in place for more than four years as required by law and by the rules of the
New York Stock Exchange.
For more information, contact Glenn Bunting (firstname.lastname@example.org) or
Maya Pogoda (email@example.com) at 310-788-2850.
Lennar Corporation, founded in 1954, is one of the nation's leading
builders of quality homes for all generations. The Company builds affordable,
move-up and retirement homes primarily under the Lennar brand name. Lennar's
Financial Services segment provides primarily mortgage financing, title
insurance and closing services for both buyers of the Company's homes and
others. Previous press releases and further information about the Company may
be obtained at the "Investor Relations" section of the Company's website,