White Collar Criminal Defense Group

SEC Settles With St. Joe Company And Former Top Execs On Charges Of Improper Accounting Of Real Estate Assets During Financial Crisis

The SEC recently announced the settlement of charges against The St. Joe Company, as well as 5 former officials, including its former CEO and CFO.  The charges related to allegations that the Florida-based real estate developer and its top officials failed to properly apply generally accepted accounting practices to St. Joe’s real estate investment holdings. Specifically, St. Joe and its senior executives repeatedly failed to take required write-downs on the value of properties hit hard during the financial crisis. As a result, according to the SEC, St. Joe continuously filed financial statements with the SEC that materially overstated earnings and assets in 2009 and 2010, thereby depriving investors of critical information required to make informed investment decisions.

St. Joe was originally founded as a timber company by an heir to the DuPont chemical-company fortune over 75 years ago. In the 1990s, the company spun-off its forest management and railroad manufacture businesses and, with the help of a former Walt Disney Co. real estate executive as its new CEO, began the rise to power as a Florida real estate development company.

The value of St. Joe’s real estate holdings, and the company’s share price, fell drastically between 2006 and 2011 as a result of the housing downturn. During this time, David Einhorn of Greenlight Capital – which held a significant and notorious short position in St. Joe’s stock – was an outspoken critic of St. Joe’s company finances and the purported value of its land holdings. Ultimately the SEC, acting upon similar concerns, instituted its action against the company and top officials. 

St. Joe and the 5 executives neither admitted nor denied the SEC’s findings but consented to the entry of the settlement order, which found that they violated or caused the violation of, among other provisions, the negligence-based antifraud provisions, and the books-and-records, reporting, and internal controls provisions, of the federal securities laws. As a result, in addition to St. Joe’s $2.75 million settlement, the combined penalties agreed to be paid by the executives totals $335,000.  They also agreed to pay $640,000 in disgorgement, plus prejudgment interest.  Four of the former executives also agreed to be suspended from appearing and practicing before the SEC as an accountant for a number of years.

The SEC has indicated that its investigation into this matter continues.

Fourth Circuit Grants Petition For Rehearing En Banc To Determine If Cellphone Location Data Is Subject To Warrant Requirement

At the beginning and end of every telephone call, cellphones interact with their mobile carrier, which allows the cell phone provider to note the phone’s approximate location, and that information is then saved to a server. Prosecutors rely on cell site location information to place defendants at crime scenes by tracing the movements of the cell phone and its user across public and private spaces. Whether law enforcement officials are able to obtain this information from mobile carriers without a warrant, however, is up for debate.

 In August, a divided three-judge panel of the Fourth Circuit ruled in United States v. Graham, Nos. 12-4659, 12-4825, 2015 WL 4637931 (4th Cir. 2015), that the government’s historical procurement of cellphone location data from service providers amounted to an unreasonable search under the Fourth Amendment because “society recognizes an individual’s privacy interest in her movements over an extended period of time.” The Fourth Circuit panel, however, still upheld the district court’s refusal to suppress the cell-site location information on the grounds that the law enforcement officials acted in good-faith reliance on the Stored Communications Act and pursuant to the orders of two federal magistrate judges. The panel’s opinion, notably, conflicted with decisions from the Third, Fifth, and Eleventh Circuits on whether the Fourth Amendment applies to the collection of historical cell site data. Those circuits have said that historical cell-site records are not protected by the Fourth Amendment under the third-party doctrine, which holds that a person does not have a reasonable expectation of privacy in information voluntarily conveyed to a third-party.

On October 28, 2015, the Fourth Circuit granted the government’s petition for rehearing en banc in Graham, eliminating (at least for now) the apparent circuit split. However, given the increasing intersection between technology and the Fourth Amendment, it seems likely that the Supreme Court will eventually need to address the issue.