Ex-St. Joe CFO, Others Accused of Improper Accounting

A Florida developer overstated earnings by failing in its impariment testing of real estate assets.
Matthew HellerOctober 27, 2015

St. Joe Co., its former CFO, and three other former executives have agreed to pay a combined $3.7 million to settle charges that the Florida developer and landowner failed to properly account for the declining value of residential properties during the financial crisis.

St. Joe materially overstated earnings and assets in 2009 and 2010 as a result of deviating from GAAP in the impairment testing of its real estate development assets, the U.S. Securities and Exchange Commission said Tuesday in an administrative order.

Among other things, former CEO William Britton Greene, former CFO William S. McCalmont, and former Chief Accounting Officer Janna L. Connolly allegedly used an unreasonably high property valuation in their impairment testing of St. Joe’s largest development, the Windmark Beach II project in St. Joe, Florida.

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In the fourth quarter of 2011, the company recognized aggregate impairment losses of more than $374 million, resulting in writedowns of its investment in real estate by more than 50% and its total asset value by more than 35%.

As part of a settlement with the SEC, St. Joe will pay a $2.75 million civil penalty. The individual executives agreed to pay another $975,000, including $520,000 against Greene, $300,000 against McCalmont, $130,000 against Connolly, and $25,000 against former Director of Accounting J. Brian Salter.

“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,” Andrew J. Ceresney, director of the SEC’s Enforcement Division, said in a news release. “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, St. Joe specifically failed to include all necessary costs in its impairment testing, using “relative sales value” worksheets that were only a partial summary of the cash flows found in the company’s more comprehensive approved economic models.

Had all the required costs been included in the testing, the SEC said, St. Joe would have been required to take writedowns on three of its largest real estate developments.