Lawsuit claims WCI misled its investors
Fired executive Robert Hanna says the development company manipulated financial data.
By SCOTT BARANCIK
Published July 3, 2004
A whistleblower lawsuit filed this week against Al Hoffman Jr. and other top executives at WCI Communities Inc. accuses the Bonita Springs company of misleading investors about its financial performance.
In a suit filed Wednesday in U.S. District Court in West Palm Beach, former executive Robert Hanna alleges he was fired in October for complaining that WCI, builder of communities such as Sun City Center and Plant City's Walden Lake, inflated its 2003 earnings forecasts and then used accounting tricks to reach them.
WCI denied the allegations made by Hanna, who served as president of the company's Palm Beach County homebuilding division.
Company spokesman Ken Plonski said Friday that Hanna was fired because of customer complaints about construction quality and other problems, not in retaliation for allegations of fraud that Plonski called "meritless." Plonski also said the U.S. Department of Labor recently dismissed a related administrative complaint Hanna filed against WCI.
Now senior vice president of operations at Ecclestone Signature Homes of West Palm Beach, Hanna, 47, is seeking lost pay and damages both under Florida's Whistleblower Law and the retaliatory portion of the federal Sarbanes-Oxley law of 2002. To succeed, said his lawyer, Jim Beasley of West Palm Beach, Hanna must prove that WCI fired him at least in part for citing concerns about allegedly illegal corporate practices.
The lawsuit alleges that top WCI executives began manipulating financial data shortly after the company went public in March 2002.
"The obvious motivation for WCI's manipulation of its business plan and false reporting of profit sources was to conceal the company's poor performance relative to other companies in the industry, excessive compensation being paid to senior executives (such as Hoffman), and to increase the value of the stock options and stock grants that WCI's senior executives had received," the lawsuit says.
Hanna, a Boca Raton resident and registered Republican, also accuses founder and chief executive Hoffman of pressuring him to make contributions to Republican political coffers, solicit donations from WCI contractors, and favor Republican donors when awarding contracts, Beasley said. Hoffman, 70, is finance chairman of the Republican National Committee and a top party fundraiser with close ties to the Bush family.
Plonski scoffed at the allegations of political pressure.
"I can tell you, for one, I am on the executive management team at WCI, and have never once been approached by Al Hoffman to contribute to a particular campaign personally," Plonski said.
Hanna alleges that WCI president Jerry Starkey surprised him and other division presidents in late 2002 by unilaterally raising their 2003 home-sale projections to unrealistic levels. Though Hanna and his boss had agreed upon a goal of selling 275 units at the 1,000-unit Evergrene community in Palm Beach County, Hanna says, Starkey raised the target to 340 units over Hanna's objections.
Former colleague Armando Goenaga corroborated some of Hanna's accounting allegations in an internal memo attached to the lawsuit. Goenaga wrote, "The concern ... is that no consideration was given to market conditions, timing of product development, sales trends, timing of entitlements, permits approvals, timing of development, etc."
To cover inevitable shortfalls, Hanna alleges, WCI would reclassify developable land as "non-strategic" and then sell it right before the end of a given accounting period. WCI also allegedly moved funds from profitable divisions to unprofitable ones to make the latter appear financially healthy. Hanna says WCI's 2004 financial projections contain similarly arbitrary sales projections.
After WCI appointed an internal auditor in 2003, Hanna allegedly shared his concerns and suggested the auditor pass them on to the chairman of WCI's audit committee. Weeks later, WCI executives fired him. The parties could not agree on a severance package, and Plonski called Hanna's counteroffer "outrageous." Hanna sued.
Former West Palm Beach Mayor Nancy Graham, a Republican and Hanna's predecessor as president of the Palm Beach County homebuilding division at WCI, told the Palm Beach Post on Thursday that Hanna had "incredible integrity."
"If I were asked to be a witness for either side," she said, "I would far more likely be helpful to Robert Hanna than I would to WCI."
Investors appeared relatively unconcerned about the lawsuit against WCI this week. The company's stock fell 3 percent in heavy trading Thursday to close at $21.55 per share, then rose slightly in light trading Friday to close at $21.71.
- Times news researcher Caryn Baird contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or 727 893-8751.