Municipal Mortgage & Equity LLC will be able to file corrected financial statements by the end of November as promised despite the discovery of more accounting problems and the resignation of its chief financial officer, Chief Executive Officer Michael L. Falcone said yesterday.
The Baltimore company, a real estate and alternative-energy financier known as MuniMae, has experienced several setbacks during a lengthy review of its accounting. As executives try to get the numbers right, they have repeatedly uncovered weaknesses in accounting procedures, and now CFO Melanie M. Lundquist is leaving for another job.
Nonetheless, Falcone sounded upbeat in an interview yesterday. He has blamed the accounting problems on MuniMae's inexperienced staff and on the company's former independent auditor, PricewaterhouseCoopers LLP, which was dismissed last year. He maintains that the company's underlying business is sound.
"The issues that we are finding are accounting issues, and they don't have to do with the performance of the company," Falcone said. "I have every reason to be optimistic about the future. ... At the same time, I'm disappointed we didn't get the financial reporting right, and we are spending the time and energy to get that right."
MuniMae, whose stock is traded on the New York Stock Exchange, hasn't filed financial statements since August 2006. Its accounting problems arose as its business model became increasingly complex. In addition to arranging complicated real estate financing, the company has branched into financing affordable housing overseas and solar-power projects around the United States.
Companies across the country are faltering in their efforts to comply with accounting rules implemented after the scandals at Enron Corp. and WorldCom Inc. Companies filed a record 1,538 financial restatements last year, according to Glass Lewis & Co. That meant one in 10 U.S. companies restated.
Eric Sussman, who lectures on accounting and real estate at the University of California at Los Angeles, said the restatement process can stretch out for months, as companies grapple with the new complexities while trying to juggle day-to-day business operations.
'Hard to catch up'
"Once you're behind the eight ball, it's hard to catch up," Sussman said. "Meanwhile, you've got companies that have significant shortcomings in accounting, and one has to ask, 'Are the inmates in charge of the asylum?' The people who now have to correct the accounting are the ones who let the stuff go to pot in the first place."
MuniMae began its restatement 10 months ago, six months after announcing a previous restatement. The company is now re-examining financial statements going back four years, and it remains unclear how the bottom line will be affected.
Falcone said the company has hired dozens of outside consultants and accountants to help after executives discovered the process was "way more complicated" than originally anticipated. Recently, the company tapped Navigant Consulting Inc. to join Deloitte & Touche LLP and various consulting firms.
"It can kind of grind you up," Falcone said. "It's 70 to 80 hours a week, and it's been that way for 10 months, and there's another four months to go."
Still, Falcone said the company is making significant progress. It has completed the audit for a bond subsidiary that holds most of its tax-exempt bond investments. That restatement resulted in a $53 million increase in the value of the bond pool.
Internal controls
The company also has outlined a number of weaknesses in its internal controls, or systems intended to ensure the accuracy of financial statements.
It found, for instance, that it improperly claimed interest from reserves in bank accounts that should have gone to funds that hold investments in partnerships that get tax credits for developing affordable housing projects, according to a filing with the Securities and Exchange Commission yesterday.
The company is trying to determine the exact amounts to reimburse the funds.
Lundquist couldn't be reached to comment; she has accepted an offer to be chief financial officer of Haven Custom Homes Inc. She was the second CFO to resign in 18 months.
Charles M. Pinckney, an executive vice president at MuniMae, has been named chief operating officer and interim CFO.
Timothy J. Lordan, who was vice president of investor relations, left last month. Lordan said he took a job in real estate and declined to comment further.
laura.smitherman@baltsun.com