Lennar Corp.

Lennar Corp. is attracting the wrong sort of attention these days. I might as well put this blog officially on that bandwagon.

Lennar, which is based in Florida, is the third-biggest homebuilder in the United States.

Back in 2006, when home building still seemed like a bullet-proof business to be in, Lennar and LNR Property Corp. co-owned a large property north of Los Angeles, Calif., known as Newhall Ranch. They agreed, at the urging of go-between Victor MacFarlane, to sell a majority stake in that property to the California public retirement system, CalPERS, for $970 million. The land sat along the I-5 corridor, a developers' dream. What could go wrong?

A good deal did go wrong with this joint venture, known as LandSource. CalPERS lost $1.2 billion, and this rather dented that pension system's previously high reputation for making prudent investment calls.

That was the least of things. It appears that this year federal criminal investigators have become interested in the LandSource imbroglio.

The Fraud Discovery Institute has listed the LandSource matter as one of several red flags indicating, in FDI's words, that something RICO-actionable is underway in Lennar. It portrays LandSource (I'm paraphrasing here) as a classic pump-and-dump situation, in which Lennar took the money while the gettin' was good.

It obviously isn't illegal, or wrong, to buy low and sell high. But the FDI regards the LandSource deal as part of a broader pattern of behavior -- one of many red flags, which also allegedly included such matters as a falsified HUD document, civil complaints by homeowners, F grades from the Better Business Bureau, etc. They put together an intriguing case.

Here's what Tracy Coenen has had to say.

I've focused on the CalPERS loss here because ... well, because that is eye-catching, given CalPERS' image and broader significance for widows and orphans. But I'll be trying to catch up on this story in its other aspects as it develops.

Sirius XM: Meeting Results and Litigation

Sirius XM, the satellite radio company, held its shareholder meeting one week before Christmas.

The stockholders approved all four of the pending measures: re-electing the board of directors, amending the charter to increase the number of authorized shares, authorizing a reverse stock split, and ratifying the appointment of KPMG as the independent auditor.

Shareholder Michael Hartleib had sought to have this meeting postponed. Obviously, he didn't succeed in that. But his lawsuit, in the central federal district of California, continues. How much longer this case will continue may turn on whether the court reads the complaint as an effort to sue Sirius (the pre-merger entity) on behalf of itself.

For those of you interested in looking it up, the caption of the lawsuit is: Hartleib v. Sirius Satellite Radio Inc.et al. The docket number is 08-cv-00790.

On November 17, defendants in that lawsuit filed a motion for its dismissal. I gave the background of that, the last time I wrote on Sirius in this blog. I'll try not to repeat myself too much. But the next two paragraphs are by way of review.

The complaint focuses on the merger as a breach of fiduciary obligation. "The Board and officers of Sirius ... grossly mismanaged its operations by engaging in reckless financing of the merger [ignoring] warning signs that the merger ... would severely damage Sirius Satellite Radio Inc." Plaintiff says that shares of Sirius traded at about $2 a share before the merger, and have since (as of late October) fallen to 29 cents per share.

In the motion to dismiss, defendants say that such charges are "without particularized facts about the individual directors' supposed conflicts. Likewise, Hartleib carelessly accuses the Board of misconduct ... without identifying specific wrongdoing by any particular member."

In a memorandum opposing dismissal, Hartleib's attorneys (led by Bernard C. Jasper of Irvine, Calif.) explain their view that Hartleib is in a position to sue both derivatively (as a representative shareholder) and directly (as someone who suffered harm distinct from that of other shareholders). A derivative lawsuit involves the claim that the object of the fraud is the corporation itself, which for various reasons (here, the capture of the board by the alleged fraudsters) has declined to or cannot sue on its own behalf.

"Hartleib has standing to sue derivatively because Sirius could sue directly," reads one of the subheads.

The complaint alleges that a RICO enterprise was conceived and hatched by XM, Interoperable Technologies, and various individual defendants. The complaint did not name Sirius itself as a participant in the alleged RICO, accordingly he is not in the untenable positionof eeking to sue Sirius (with regard to those particular accusations of the complaint) on behalf of itself.

The caption of the case really isn't much of a help in making this particular point, because as noted above Sirius is the first named defendant.

Anyway, the defendants replied in a brief dated Dec. 8, re-asserting the case as they see it for dismissal. Short summary of the reply memo as respects the derivatives claim, "yes, you did too." Defendants contend that the RICO claims of the complaint in its two incarnations (it was amended once in response to an earlier motion to dismiss) do too in their sweeping language implicate Sirius as part of the Racketeering Influenced Corrupt Organization.

What do I think? I think that consolidation was inevitable. There's only room for one major satellite-radio provider. So I think efforts to characterize this consolidation as racketeering are dubious.

But, hey, I'm watching and learning with the rest of you as this unfolds.