MuniMae to restate earnings 2nd time

Accounting lapses blamed for action

September 14, 2006|By Laura Smitherman | Laura Smitherman,Sun reporter

Municipal Mortgage & Equity LLC, the real estate financier best known as MuniMae, reported yesterday that it would again have to restate earnings - this time for nearly 40 months - after concluding that its inexperienced accounting staff mishandled the books.

The Baltimore-based company said yesterday that the latest restatement, its second this year, would not affect cash available for distribution, a key performance measurement that investors closely watch. The company said it had not determined whether the restatement would result in higher, or lower, net income for the first quarter as well as the years 2003 through 2005.

In March, MuniMae restated earnings going back four years, changes that boosted earnings by a total of $23 million. The latest restatement announced yesterday comes as the company continues to assess the qualifications of its accounting staff, hire more personnel and ensure it has clear accounting policies in place.

The company said that its financial reporting process is "manually intensive" and that it is working to make it more automated.

"We had a senior accounting staff that did the best they could, but I think as we have said in some of our public filings, in some cases they lacked sufficient experience to do the job correctly," said Timothy J. Lordan, vice president of investor relations. "We have made no indication of fraud in our filings."

The company stated in a filing with the Securities and Exchange Commission that its staff didn't have the necessary know-how to handle numerous aspects of accounting as the business became larger and more complex, especially in how to apply "generally accepted accounting principles." GAAP is the standard used in public-company financial statements.

MuniMae arranges and manages debt and equity financing for housing projects, hotels, office buildings and industrial complexes and has made a number of acquisitions in recent years. In May the company further expanded with the purchase of Renewable Ventures LLC of San Francisco, which operates and arranges financing for solar and other renewable power plants.

Its accounting problems date to 2004, when the company recognized the need for "additional qualified" personnel and began recruiting, according to SEC filings. Also that year, the company discovered it had not properly accounted for deferred compensation payable to Chairman Mark K. Joseph under his employment contract. The company said it didn't have a system to ensure that all significant contracts are reviewed by accounting staff.

The company tried to remedy its problems by doubling its accounting staff by the end of 2004. Then in 2005 it hired several top accounting executives, including Melanie M. Lundquist, who had been controller at the Rouse Co., the Columbia real estate giant that was acquired in 2004. Lunquist quickly ascended to the post of chief financial officer, replacing Williams S. Harrison in December.

MuniMae has discovered a number of weaknesses in its internal controls, which are systems intended to ensure the accuracy of financial statements, according to recent SEC filings. The company said yesterday it was not in compliance with rules governing the accounting for tax benefits gained from investments in affordable housing projects. It also said it didn't properly record cash flows and syndication fees.

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