Lennar faces stinky drywall, 'Ponzi' claims
As if Florida's housing market needs another challenge. The Wall Street Journal today (subscription required) reports that Chinese-made drywall some builders used is causing unpleasant odors and possibly leading to electric problems in dozens of homes constructed during the housing boom.
One homeowner quoted in the story is Marty Smith, whose air conditioner in his home near Tampa reportedly has had repeated problems since he moved into his Lennar Corp. townhouse in March 2007. He said repair workers were perplexed by the frequency of the units' failures.
Lennar, based in Miami, recently tested the air and drywall in his house and expects the results in a few weeks. Lennar's previous tests in other developments have found no health threats. "My biggest fear is we'll be stuck with a house we can't sell," Smith says in the story. It's a concern only amplified in a housing market where selling a home is tough even under the best conditions.
Lennar says it is standing by its homeowners. A handful of builders and environmental consultants are investigating whether the drywall, a wide flat board used to create interior walls, is emitting sulfur-based gases that may be corroding air-conditioner coils, computer wiring and metal picture frames. Florida health officials say they still are investigating whether the Chinese drywall is causing the odors and other problems.
Lennar's also busy putting out a more pressing fire. Shares in the third-largest U.S. builder by market value fell 20 percent on Friday after Barry Minkow’s Fraud Discovery Institute in San Diego alleged that the company operates joint ventures “like a Ponzi scheme.” Lennar denied the allegations, Bloomberg News reports.
Minkow (in photo, courtesy of Fraud Discovery Institute) posted his accusations on a Web site called lenn-ron.com. Lennar has failed to disclose material transactions, Minkow said on the site. He said he has no financial interest in the stock declining. (However, it's striking that many of Minkow's "recent news links" highlighting the institute's successes on this Web site do not lead to any live links.)
“Our joint ventures are not run as a Ponzi scheme,” Lennar CEO Stuart Miller said in an interview with Bloomberg Television. “We don’t use the equity in one joint venture to support another joint venture. These are joint ventures on individual properties.” Here's Lennar's official response, so far, to the allegations.
The Fraud Discovery Institute this morning released transcripts and documents that, it alleges, "demonstrate" that Lennar's Miller "was not being particularly candid" in a
Friday, Jan. 9, live interview on CNBC.
Minkow has his own history with fraud. He served more than seven years in prison, from 1988 to 1995, after being convicted of fraud while running a company called ZZZZ Best Co.
-- Robert Trigaux, Times Business Columnist