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St. Joe Company, former execs settle with SEC over alleged real estate overvaluing

Company accused of "materially overstating" earnings during financial crisis

One of Florida’s largest landowners and real estate developers and several of its former executives settled charges brought by the Securities and Exchange Commission, which accused the company of overvaluing its real estate holdings during the financial crisis.

The SEC announced this week that it charged The St. Joe Company (JOE), its former top executives, and two former accounting department directors, with improperly accounting for the declining value of its residential real estate developments.

As a result of this “misconduct,” the SEC said that St. Joe reported materially overstated earnings and assets in 2009 and 2010.

According to the SEC, St. Joe and its former executives, former Chief Executive Officer William Britton Greene, former Chief Financial Officer William McCalmont, former Chief Accounting Officer Janna Connolly, and former Directors of Accounting J. Brian Salter and Phillip Jones, “repeatedly failed” to properly apply generally accepted accounting practices in testing St. Joe’s real estate developments for impairment.

The SEC said that by failing to apply generally accepted accounting practices, St. Joe failed to take required write-downs on properties hit hard by the financial crisis.

According to the SEC, St. Joe, Greene, McCalmont, Connolly, Salter, and Jones each consented to the entry of the order, without admitting or denying its findings.

The SEC said that its consent order found that St. Joe and its executives violated or caused the violation of, among other provisions, the negligence-based antifraud provisions, as well as reporting, books-and-records, and internal controls provisions, of the federal securities laws.

“Where specialized accounting rules govern, it is essential that those responsible for the company’s accounting and financial reporting be familiar with and properly apply them,” said Andrew Ceresney, director of the SEC’s Enforcement Division. “St. Joe and its senior executives failed to do so here, and thereby deprived investors of critical information with which to make informed investment decisions.”

As part of the consent order, St. Joe agreed to pay a $2.75 million civil penalty to settle the SEC’s charges and Greene agreed to pay a $120,000 penalty and disgorge ill-gotten gains of $400,000 plus prejudgment interest. 

The SEC also said that McCalmont agreed to pay a $120,000 penalty and disgorge $180,000 plus prejudgment interest. Connolly agreed to pay a $70,000 penalty and disgorge $60,000 plus prejudgment interest, and Salter agreed to pay a $25,000 penalty.

Additionally, McCalmont, Connolly, Salter, and Jones each further agreed to be suspended from appearing or practicing before the SEC as an accountant, with the right to apply for reinstatement after two years (in the case of McCalmont and Jones), and after three years (in the case of Connolly and Salter). The respondents further agreed to cease and desist from committing or causing any future violations of the provisions for which each was charged, the SEC said.

Specifically, the SEC order found that:

  • Greene, McCalmont, and Connolly used an unreasonably high property valuation in the company’s impairment testing of its largest real estate development
  • Greene and McCalmont failed to disclose material changes in business strategy for two of St. Joe’s largest residential real estate developments
  • During the course of this misconduct, Greene, McCalmont, Connolly, and Salter failed to fully apprise the company’s auditors of certain material facts relevant to the company’s impairment testing
  • St. Joe’s books-and-records failures during 2009 and 2010 caused substantial delays to, and otherwise unnecessary steps in, the SEC’s investigation leading to this order

According to a report from the Wall Street Journal, the SEC consent order noted a presentation given by short seller David Einhorn’s Greenlight Capital in 2010, which called out St. Joe’s for overvaluing its holdings, including calling one of St. Joe’s developments a “ghost town.”

“St. Joe’s senior executives continuously failed to ensure that the company’s impairment testing included all costs, and that the company’s internal controls were properly applied,” said Stephen L. Cohen, associate director of the SEC’s Enforcement Division. “As a result, St. Joe’s financial statements repeatedly failed to accurately reflect the declining value of its most important assets during the financial crisis.”

In a statement, St. Joe said that the settlement and all allegations relate to actions taken prior to the 2011 replacement of the company's board of directors, the chief executive officer and the chief financial officer.

“None of the SEC's allegations, findings, sanctions, remedies or orders relate to any of the Company's current directors or controlling shareholders,” St. Joe’s sad in a statement. “The company cooperated with the SEC investigation and believes this settlement is in the best interests of the company.”

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