Jan. 9 (Bloomberg) -- Mills Corp., the owner of 38 U.S. shopping malls, said it may be forced into bankruptcy after executive misconduct and accounting errors resulted in almost four years of earnings restatements. The shares fell 22 percent, the most since August.

Mills, which is seeking a buyer, will restate results for 2001 to 2004 and for the first three quarters of 2005 and expects the errors to cost as much as $354 million. The company may seek bankruptcy protection if it can't repay a $1.1 billion loan, Mills said in a regulatory filing today.

The company lost more than half of its market value in the past year as its 104-acre Xanadu project in New Jersey's Meadowlands went over budget and it delayed earnings amid a Securities and Exchange Commission investigation. Chief Executive Officer Mark Ordan, who replaced Laurence Siegel on Oct. 1, said resolution of the investigation was the final hurdle to a sale.

The errors were ``caused by possible misconduct by former accounting and asset management personnel of the company,'' Mills said. The company was ``heavily focused on meeting external and internal financial expectations'' and didn't have adequate accounting policies and controls, the filing said.

More than a dozen top executives have left Mills in the last two years.

Shares of Chevy Chase, Maryland-based Mills dropped 22 percent, or $4.12, to $14.82 at 4:01 p.m. in New York Stock Exchange composite trading. They slid 52 percent in 2006, making the stock the only loser in the nine-member Bloomberg Regional Mall Index.

Accounting Errors

Accounting mistakes included a failure to record a foreign currency gain, miscalculations of executive bonuses and a mix-up between Mills revenue and revenue generated by joint ventures, the company said.

Mills also failed to properly account for its Empire Tract property in the Meadowlands, which the company sold to the state of New Jersey as part of winning the bid to develop the Xanadu project, the filing said.

Mistakes were caused by a range of factors, from good-faith errors in judgment to possible misconduct by former employees that ``reflect a lack of competence and in some instances a failure of communication and inadequate internal controls,'' Mills said.

The investigation was conducted by a committee of Mills board members assisted by law firm Gibson, Dunn & Crutcher LLP. The findings have been reported to the SEC, the company said.

Goldman Sachs Loan

Mills has a $1.1 billion loan from the Goldman Sachs Mortgage Co. that originally was due on Dec. 31, 2006. Last month, Goldman Sachs agreed to extend the due date to March 31. Mills said it hopes to refinance four of its malls to generate $35 million for operating expenses, with any additional money going to pay down the debt. If Mills can't repay the loan, it could be forced to seek bankruptcy protection, the filing said.

Mills may request another extension and expects to remain in compliance with the terms of the Goldman Sachs loan, the company said in a statement distributed on Business Wire.

Mills added that it ``continues to be actively engaged in the exploration of strategic alternatives, and the company believes that the completion of the audit committee investigation and the extension of its senior term loan are two important components to the successful completion of this process.''

Executive Bonuses

On Jan. 5, Mills gave bonuses to Ordan and Chief Financial Officer Richard Nadeau. Ordan received $382,000 and Nadeau $209,250. The bonuses were awarded for their work on selling Mills assets, the company said. Ordan didn't immediately return phone calls for comment on the filing.

The company's second-biggest investor, Tel Aviv-based Gazit Globe Ltd., has offered to invest $1.2 billion to help revive the company. Gazit won two board seats on Dec. 29 after pressuring the company to hold its annual meeting.

Mills has so-called ``standstill agreements'' with Gazit and with its biggest investor, Farallon Capital Partners, a San Francisco-based hedge fund. The accords prevent the two companies from trading Mills shares until March 31.

Ellen Barry, an outside spokeswoman for Gazit, would not comment on today's filing.

Mills sold malls last year in Canada, Scotland and Spain for $981 million to reduce debt. It sold its stake in Meadowlands Xanadu to Colony Capital Acquisitions LLC, a closely held, Los Angeles-based real estate developer. Mills took an impairment of up to $655 million for Xanadu, its biggest project ever.

Mills properties include The Shops at Riverside in Hackensack, New Jersey; Arundel Mills in Baltimore; Franklin Mills in Philadelphia; Sawgrass Mills in Fort Lauderdale, Florida; and Del Amo Fashion Center in Los Angeles.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: January 9, 2007 17:29 EST