Developer, Former Top Execs Charged for Improper Accounting of Real Estate Assets During Financial Crisis

The Securities and Exchange Commission today charged The St. Joe Company, a Watersound, Florida-based real estate developer and landowner, its former top executives, and two former accounting department directors, with improperly accounting for the declining value of its residential real estate developments during the financial crisis. As a result of this misconduct, St. Joe reported materially overstated earnings and assets in 2009 and 2010.

“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 J. 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.”

According to the SEC’s order instituting settled administrative and cease-and-desist proceedings, St. Joe, through its former CEO William Britton Greene, former CFO William S. McCalmont, former Chief Accounting Officer Janna L. Connolly, and former Directors of Accounting J. Brian Salter and Phillip B. Jones, repeatedly failed to properly apply generally accepted accounting practices in testing St. Joe’s real estate developments for impairment, resulting in the failure to take required write-downs on properties hit hard by the financial crisis.

“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.”

The order also finds 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.

Without admitting or denying its findings, St. Joe, Greene, McCalmont, Connolly, Salter, and Jones each consented to the entry of the order, which found that they 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.   

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. 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. 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’s investigation, which is continuing, was conducted by James J. Bresnicky, Alfred C. Tierney, Kristen Dieter, and Brian R. Palechek, and supervised by J. Lee Buck, II.