CBL under investigation for accounting fraud, Wall Street Journal reports

CBL under investigation for accounting fraud, Wall Street Journal reports

May 25th, 2016 by Dave Flessner in Business Around the Region

The Wall Street Journal said today that federal law enforcement officials are investigating CBL & Associates Properties Inc. for alleged accounting fraud.

But the Chattanooga-based real estate firm said today it has not been contacted by the FBI or the Securities and Exchange Commission and CBL officials said they "strongly deny" the allegations in the newspaper report.

The Journal quoted sources who said the FBI and SEC are focusing their examination on whether CBL officials falsified information on financial statements to banks when applying for financing arrangements.

The Journal, which reported the investigation today, previously disclosed trades with the Chattanooga company that proved valuable for U.S. Sen. Bob Corker, R-Tenn., who once worked at CBL and is a friend of several top CBL officials.

In a statement today, CBL President Stephen Lebovitz also said allegations of improper accounting are "completely baseless" and "the company operates with the utmost integrity and holds itself to the highest ethical standards."

Despite the company's statement, however, shares of CBL stock were trading about 8 percent lower today on the New York Stock Exchange.

"Law-enforcement officials have talked to former CBL employees who allege the company inflated its rental income and its properties' occupancy rates when reporting those figures to banks," the newspaper said in a report published today. "The FBI and SEC officials have also separately asked questions about the relationship between the company and Corker, who is close with senior executives at the firm and has made millions of dollars in profits trading the company's stock in recent years."

CBL owns or operates 145 retail properties across the country, including Hamilton Place and Northgate malls in Chattanooga.

"We have stringent policies and procedures in place to ensure all of our accounting and financial processes and reporting comply with applicable laws, rules and regulations," CBL said in a statement. "As we told the (Wall Street Journal) reporter - who contacted our company for the first time on Tuesday regarding this matter - neither the company nor its executives have been contacted by the FBI, the SEC or any regulatory agency regarding our company's accounting or financial practices."

Corker began his real estate career working at CBL and reported in Senate financial disclosures making numerous trades in CBL stock for himself and his children.

"A politically motivated special interest group that refuses to disclose its donors continues to make baseless charges against Senator Corker, and we know that any effort to examine his actions will result in their smear campaign being discredited," said Micah Johnson, Corker's spokeswoman.

The Journal said authorities have found no evidence to suggest that Corker has committed wrongdoing.

The Campaign for Accountability, a Washington D.C.-based group, has filed complaints with both the Securities and Exchange Commission and the Senate Select Committee on Ethics questioning some of Corker's trades in CBL stock and claiming Corker "may have shared information — gleaned through his position in the Senate — with hedge fund managers for his (and possibly their) financial benefit."

The executive director of the Campaign for Financial Accountability, Anne Weisman, said today that "Corker's pattern of buying CBL stock low, selling high, and reaping a huge profit are highly suspicious." 

"The inquiry into Sen. Corker's actions demonstrates that not even powerful senators are above the law," she said of the SEC probe.

Between 2008 and 2015, Sen. Corker, his wife and daughters made at least 70 trades of stock in CBL – more than triple the number of transactions he made of any other stock, Wiesman said. Some of the trades closely preceded company announcements that led to changes in the stock's price and seemingly resulted in the senator making millions of dollars.

"Sen. Corker is one of the richest members of the Senate," Weisman said. "The question now is whether he came by that great wealth honestly."

The Journal last year reported on Corker's investments in CBL, which include stock purchases of at least $1 million in CBL in November 2011 the day before the stock rose 7 percent and then continued to climb. Corker sold the stock he originally bought for somewhere between $1 million and $5 million in value rose six months later for between $5 million and $25 million.

Senate disclosure requirements don't specify individual values or stock trades made by members of Congress, only a range of what the investment may be worth.

In November, the Wall Street Journal reported that Corker had failed to properly disclose several CBL trades on his personal financial statements filed with Congress. Corker later amended his financial disclosure, blaming "technical errors" in the original filing by his former accounting firm.

Michael Lebovitz, the son of CBL Founder Charles Lebovitz and the brother of Stephen Lebovitz, served as a vice chairman of Corker's initial Senate campaign and top CBL officials have been among major donors to Corker's political campaigns through the years. Corker's home in Riverview in North Chattanooga also is near where top CBL officials also live.