GDC CHANGED ITS NAME, BUT BAD LUCK KEEPS FINDING IT
Miami-based General Development Corp. specializes in home-building. But to judge from recent history, its main product is trouble. Indeed, the GDC saga is a veritable miniseries of corporate misdeeds and misfortunes: It and top executives get indicted on 16 fraud counts in 1990, forcing the company into Chapter 11. GDC then settles the federal case by pleading guilty to mne count, sets up a restitution program for angry home buyers, renames itself Atlantic Gulf Communities Corp., and emerges from bankruptcy in March.
But the future is still murky. Its new restructuring plan is dicey, and the Florida real estate market remains anemic. Looming ahead is the final phase in the trial of GDC's former top officers, who are contesting the fraud charges. Even worse for public relations, the new CEO, J. Larry Rutherford, must guide the builder through tricky shoals while dealing with a personal problem: He faces charges of drunk driving, vehicular homicide, and manslaughter.
The woes of GDC (table), founded in 1955 and once one of the nation's largest developers, stem from an alleged scheme to defraud gullible buyers of its Sunshine State houses. A federal grand jury alleged that GDC inflated housing values and misled buyers, who trusted the developer's reputation and its New York Stock Exchange listing.
`A LOT OF CONCERN.' With the trial of GDC's former leaders resuming in June, the aroma of the purported real estate scam won't fade quickly. Despite the company's guilty plea, former Chairman David F. Brown, ex-President RobertF. Ehrling, and two other since-departed executives are continuing to fight. Lawyers for the defendants argue thatany misdeeds by GDC can't be tied to their clients. Plus, they say adequate pricing disclaimers were made on company literature. "Caveat emptor," says Richard Sharpstein, a defense lawyer.
Then there are the legal problems of new CEO Rutherford. A year ago, say state police, he had too much to drink and his car spun out of control, causing a collision that killed his passenger and close friend, Philip Birdsong. His driving record shows an earlier drunk-driving conviction and a violation for refusing a Breathalyzer test on another occasion. Rutherford has pleaded innocent. His lawyer, J. David Bogenschutz, says his client will be exonerated. He calls the blood-alcohol test flawed in the Birdsong incident and says Rutherford's driving record may be inaccurate.
For the homebuilder, the larger question is whether Rutherford, who has four years to go on a five-year employment contract, can discharge his duties as his case goes forward. Some of its eight board members--all are new--are worried. "There is a lot of concern--this is a criminal charge," says one.
But Bogenschutz argues that the charges "are not business-related and don't affect his ability to manage." Company Chairman James Apthorp expresses confidence in Rutherford, who successfully guided GDC through bankruptcy. Previous board members note no change in his job performance.
Rutherford is banking on the new Atlantic Gulf's raising $150 million to $200 million over the next three years by selling 40% of its 87,000 acres and most of its nine water-and-sewage plants. "This will be a viable community developer" again, he pledges.
Yet the odds are long. Three of the plants are tied up in legal proceedings, and land values may be optimistic. Further, the earnings outlook for homebuilding is cloudy. Fort Lauderdale real estate analyst Lewis M. Goodkin says the Florida retirement market, GDC's long-time focus, will be sluggish in the 1990s. Sales last year drooped 45% from their 1986 peak. This arena is dominated by low-cost builders, so the revamped company faces rough price competition and slender profit margins.
In the end, Rutherford concedes, a new name is not enough. The developer must rebuild its image. The company stresses that all activities will be monitored by a court-sanctioned program, as part of its probation. "A reputation is lost in a minute and earned over a lifetime," says Rutherford. Given all the obstacles, he can only hope it won't take that long.GDC'S MANY TRAVAILS
MARCH, 1990 General Development Corp., a subsidiary, and top executives David
F. Brown and Robert F. Ehrling are indicted on fraud charges
APRIL, 1990 GDC and subsidiaries file for Chapter 11
NOVEMBER, 1990 Company pleads guilty to single count of mail fraud. Agrees to
pay disgruntled home buyers up to $160 million in restitution
MARCH, 1991 J. Larry Rutherford named CEO. Involved in auto tragedy in April.
Later charged with vehicular homicide
MARCH, 1992 GDC emerges from bankruptcy court renamed Atlantic Gulf Communities
Corp. Plans to sell off land and other assets and return to homebuilding
JUNE, 1992 Trading to begin on new company's stock, but outlook uncertain with
real estate market depressed. Delayed trial of Brown and Ehrling, who have left
the company, to resume. Rutherford's auto case still pending. He pleads innocent
Gail DeGeorge in Miami