LOS ANGELES (AP) — Building giant Lennar Corp. and a former subsidiary defrauded California’s public pension fund and others during their partnership in a failed development venture that involved the last major tract of undeveloped land in Los Angeles County, according to a lawsuit filed in bankruptcy court.
Lennar and the subsidiary LNR Property Corp. — at the expense of their creditors and partners in the venture — engineered a transaction to cash in on $1.4 billion of debt they knew they would never be able to repay, according to the lawsuit filed last month in Delaware.
LNR “orchestrated a transaction in February 2007 that would and did allow it and its co-owner Lennar to leverage their controlling ownership interests for ‘special’ distributions of $700 million each to escape future losses and instead improperly realize a hefty payday,” the complaint says.
The lawsuit, which was filed on behalf of creditors of the venture known as LandSource Communities Development LLC, names LNR and two affiliates as defendants. It does not name Lennar, which was released from liability in claims concerning the LandSource deal as part of the venture’s bankruptcy settlement.
Jen Brown, a spokeswoman for LNR, which is now co-owned by Cerberus Capital Management LP, had no immediate comment. Lennar spokesman Marshall Ames did not respond to an e-mail Wednesday.
Plaintiffs in the lawsuit do not include the California Public Employees’ Retirement System, which during the venture’s bankruptcy lost the nearly $1 billion it invested in LandSource. CalPERS spokesman Wayne Davis declined to comment on the lawsuit.
The complaint identifies its plaintiffs as the LandSource Creditor Litigation Liquidating Trust. Plaintiffs’ attorney Michael Lynch did not respond to an e-mail seeking more details.
In the lawsuit, Lennar and LNR are accused of using an appraisal that overstated LandSource’s value when, as the venture’s sole owners in 2006, they secured up to $1.55 billion in financing for development projects from investors led by Barclays Bank PLC.
LandSource’s primary holding was the planned 21,000-home Newhall Ranch project on a 15,000-acre expanse of rugged hills on Los Angeles County’s northwestern fringe.
Lennar and LNR each took $700 million of the borrowed money in exchange for their shares in LandSource when CalPERS and its investment partners bought into the venture in February 2007, the complaint says.
CalPERS and the ventures’ other creditors were left with that debt when falling land prices pushed LandSource into Chapter 11 bankruptcy protection in June 2008, according to the lawsuit.
The suit also accuses Lennar and LNR of telling lenders and investors that they would buy back the majority of LandSource’s property during the three years after they sold their stake in the venture, but they failed to do so.
“LandSource’s projected revenue and near-term cash flow at the time of the 2007 transaction was heavily dependent on Lennar and LNR following through with their business plans, which never occurred,” the suit says.
The complaint seeks the $700 million that plaintiffs claim was fraudulently transferred to LNR, along with other damages.
The suit comes about a year after a judge gave final approval to the LandSource’s reorganization plan, which gave the venture’s main financial backers equity in a reorganized company in exchange for the more than $1 billion they were owed.
The settlement also allowed Lennar to buy 15 percent of the Newhall Ranch project for $140 million and to install an affiliate company as its manager.
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