Lennar Corporation was nearing insolvency in 2007 as housing and mortgage finance markets collapsed under the weight of massive fraud in the subprime mortgage markets. Without a substantial cash infusion it was almost certain the company would collapse, file bankruptcy, and likely face either liquidation or a prolonged, expensive, and uncertain bankruptcy proceeding.

Records show that Lennar top executives knew as early as the fall of 2006 that the housing markets were imploding due to increasing problems in the mortgage sector. The home building business by then was dependent on subprime mortgages for home sales. No mortgages meant no sales. 

When the home sales market declines, the residential land market is sure to follow. It didn't take a PhD to figure out that by 2007 the land markets would also implode - just like the housing market.

Lennar and its sister company LNR owned a land holding company aptly named LandSource. Lennar managed LandSource, and LandSource became the vehicle used by Lennar to fraudulently obtain desperately-needed cash. 

Lennar executives engineered a transaction that seemed absurd on its face. They proposed to CalPERS that the pension fund contribute land assets to LandSource, take a majority interest in LandSource, and allow Lennar to place a 1.4 billion dollar conventional syndicated loan secured by all of the assets of LandSource. The loan was placed in part utilizing assets contributed by CalPERS as collateral. Lennar, acting in the role of manager of LandSource, then immediately stripped the desperately-needed cash from the balance sheet of LandSource and distributed it to Lennar and its sister company LNR.


It is worth noting that Stuart Miller, CEO of Lennar, was also in control of LNR at that point in time. Miller and his family benefited immensely from this crime.


CalPERS agreed to the transaction despite the obvious implications of a transfer of all liquidity off of the LandSource balance sheet. LandSource was still saddled with over 1.4 billion in debt, and had no cash or cash flow to pay principal or even interest. The land markets had already taken a steep downturn. LandSource was insolvent the day the transaction closed, and filed bankruptcy just a little over a year from implementation of the scheme. 


This dubious transaction closed at the end of the first quarter of 2007, a time period when there was no doubt which way land and housing markets were headed - best described as "off a cliff". Jon Jaffe, Stuart Miller, and other key Lennar executives were directly implicated in the swindle.

It is especially notable that the CEO of CalPERS at the time the transaction took place was Fred Buenrostro. Mr. Buenrostro was subsequently found to have been running a "pay to play" operation at CalPERS at the same time this LandSource transaction took place. He was indicted and pled guilty to all charges. He is now in Federal prison.

Below is a link to the complaint filed by Citizens Against Corporate Crime LLC, the Relator in this case. The complaint  provides a detailed explanation of this crime and the key players involved in this scheme. If there was ever a situation that merited the filing of a lawsuit under the Act, this is it. The State of California is poised to recover up to 3 billion dollars from Lennar and its key executives.