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alstry (35.61)

Coincidence of Conspiracy?

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15

March 26, 2008 – Comments (1)

SPF is a public HB with the second largest exposure to JV liability.  It is been subject to material remargin payments over the last few quarters as home prices and land values have crashed.  Its assets are concentrated in some of the most difficult markets in the country namely CA, FL, AZ, and NV.  Its backlog to debt is one of the lowest at 1/6.  It has obtained 4 debt waivers and is now negotiating a 5th. 

Last year, its independent director, JV Peterson was making token open market purchases of shares of SPF shortly before negative events occured at SPF such as a very dilutive convertible offering on terms very onerous to existing shareholders.  Seems strange for a guy with investment banking experience.  It seems likely that JV Peterson was aware of the pending offering when he made is open market purchases.  A subsequent open market purchase was made as conditions deteriorated further in the Fall.

During this period and thru the present, the company has been making relatively optimistic projections to shareholders analysts.   In February, the board, including JV Peterson at the time, authorized a bonus for CFO Andrew Parnes for $1.6 million dollars and more for a few other executives but left the CEO Steven Scarborough out the cold.  The bonuses were authorized even though the company was in violation of its loan covenants, being foreced to make material JV remargin payments, coming off a year where it lost more money that it lost in its entire existence as a public company, eliminated shareholder's dividend, and fired employees at many levels.

"Unexpectedly" last Thursday, CEO Steven Scarborough resigned causing JV Peterson to become the new CEO.  Surprise Surprise, the guy who was making token open market purchases of shares last year is the new CEO.  Interestingly, JV has no homebuilding managerial experience.  His new base salary of $850K(perks have not been identified yet) will cover the net cost of all of his open market purchases in less than a month.  LESS THAN A MONTH.

But not too be left out in the cold for getting no bonus in Februry, ex CEO Scarborough is getting over $1 million dollar severance package plus a list of other benefits.

Now here is where things get really interesting....what is the fair market value of SPF's assets?  We know that FloridaBuilder has awaken and seen the light about how bad things really are.  We know that land has been selling in CA, FL, and AZ for pennies on the dollar.  We know JVs are deteriorating by the minute.  The question is whether the fair market value of SPF's assets are really worth more than the billions and billions of debt and liabilities.  If not, SPF is practically insolvent and managment and the board has not informed shareholders and creditors....yet.

Officers and Directors of an insolvent company have a fiduciary duty to creditors not to waste corporate assets.  Excessive payments to officers and directors could be deemed improper preferential payments and could be disgorged.  Whether any of the above is in fact reality requires further investigation.  But if it is in fact true, every day the board waits to protect the creditors interests, the damages could be increasing by the millions as each day passes.

What is really going on at the board and executive level at SPF?.....your perspective is always encouraged.

1 Comments – Post Your Own

#1) On March 26, 2008 at 2:32 PM, DemonDoug (85.14) wrote:

The question always is:

Incompetence or dishonesty?

With the amount of loan modifications they've gotten, I think incompetence is a hard sell, so that only leaves the other one.

Bent said it best with his "hundreds of Enrons" comment.  You can see the red thumb on my SPF pick at 2.50.  So you can see where my feelings lie on the matter.

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