Corporate Social Responsibility and Business Ethics

Unit 7 – Lennar Corp. Case (revised Feb. 18)

Dennis Strouble

2/16/2016 10:00 PM

The Lennar Corporation is number 364 on the 2015 Fortune 500 List and traded on the New York Stock Exchange. They are a component of the Standard and Poor's 500 Index.

As a publicly traded company, Lennar has to file quarterly and annual reports with the SEC (These are footnoted in the case) and are audited every year by an independent auditing firm (They use Deloitte & Touche).

Chapter three discusses the requirements of Sarbanes-Oxley Act of 2002. (Apply the readings to the cases). As the FDI Report admits, they did have an auditing committee. They have to follow GAAP.  Go to the Lennar website to learn about the company including community involvement. http://www.lennar.com/about/products-and-services

Their financial filings and reports can be viewed at http://www.lennar.com/investor/investor.

While the company has to deal with the damage caused by the Fraud Discovery Institute’s claims, they also have some other issues:

          The financial crisis

Mortgage defaults

Dramatic fall in house prices, particularly in some of their active markets.

Additional background:

The Fraud Discovery Institute was founded by Barry Minkow, who was a convicted felon who found religion while in prison and became a pastor. He used his church’s resources to start the Fraud Discovery Institute. Since that time he has admitted to securities fraud in the Lennar situation and sentenced to prison. He has also been sentenced to prison for 5 years for embezzling from the church where he was the pastor. Who do you think is right in this case, Barry Minkow (He admitted to trying to make money with the false Fraud Discovery Institute Report and is now a three times convicted felon.) or the Lennar Corporation?

If you only addressed the claims of the Fraud Discovery Institute (Barry Minkow) and thought that the issue was fraud on the part of Lennar, you may want to revise your analysis.

Put yourself in the position of the CEO who is having to deal with the claim from Barry Minkow, who it turns out profited from the drop in price of the Lennar stock (SHORT SELLING). The CEO also has the other issues? What are your recommendations for actions on the part of Lennar? "In finance, short selling (also known as shorting or going short) is the practice of selling securities or other financial instruments that are not currently owned, and subsequently repurchasing them ("covering"). In the event of an interim price decline, the short seller will profit, since the cost of (re)purchase will be less than the proceeds which were received upon the initial (short) sale." (Explanation from https://en.wikipedia.org/wiki/Short_(finance)

Additional background information on Barry Minkow can be found in these news articles:

Barrett, B. (Jan. 6, 2011), Barry Minkow’s New Scandal, LA Weekly, retrieved from  http://www.laweekly.com/news/barry-minkows-new-scandal-2168568 Reckard, E.S. (Apr. 3, 2015), Court Upholds $1 Billion verdict against San Diego Developper, retrieved from http://www.latimes.com/business/la-fi-re-lennar-minkow-lawsuit-20150403-story.html  Krueger , P.,  Stickney , R.,  and  Adams , A. (Apr. 24, 2014), Barry Minkow Sentenced in $3M Church Theft, NBC San Diego, retrieved from http://www.nbcsandiego.com/news/local/Barry-Minkow-San-Diego-Federal-Court-Church-Fraud-257027481.html