SEC probes St Joe’s land accounting

The Securities and Exchange Commission is investigating how St Joe, a US property investor, accounts for the value of its almost 600,000 acres of land in north-west Florida.

Shares in the company fell more than 9 per cent on Tuesday after it disclosed in a regulatory filing before the July 4 holiday that the SEC was also looking into disclosures by chairman Bruce Berkowitz as his mutual fund built a position in the company’s stock.

A pulp and paper company formed in the 1930s that became a property investor and then housebuilder, St Joe was forced to halt most of its property development in the wake of the housing bust.

However the Watersound-based company has largely refused to write down the value of its real estate, on the basis that last year’s opening of the Northwest Florida Beaches International Airport in the centre of St Joe’s forest land will spur commercial development.

The need for such writedowns was one of the arguments made in October by shortseller David Einhorn in a presentation attempting to show that St Joe shares were overvalued.

St Joe had previously disclosed in January that the SEC was looking at the way the company approached asset impairment. Neither Mr Berkowitz or St Joe responded to requests for comment.

In an interview with Bloomberg television on Tuesday, Mr Berkowitz said that it was his decision as chairman of St Joe to disclose the SEC investigation, rather than a legal requirement to disclose material information.

Mr Berkowitz’s Fairholme group of mutual funds is the largest shareholder in St Joe, with a 29 per cent stake built up since 2008.

After taking over as chairman in February, Mr Berkowitz has orchestrated a management reshuffle and cast himself as salesman in chief for the Florida region, seeking multinational companies prepared to locate operations in the area.

The stake in St Joe is the 11th largest holding of the $20.6bn Fairholme Funds run by Mr Berkowitz, who was named domestic stock fund manager of the decade last year by Morningstar, a research group.

After a 30 per cent loss in 2008, the Fairholme Funds were up 39 per cent and 25 per cent in 2009 and 2010 respectively. The funds are flat this year so far, as big bets on a recovery in financial stocks, including American International Group, have gone against Mr Berkowitz.

The average fund in Fairholme’s category is up 5.6 per cent year to date, according to Morningstar.

The SEC’s investigation also concerns the requirement to disclose a stake once more than 5 per cent of the voting shares are acquired.

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