The Dallas based law firm of Jenkens & Gilchrist has evidently reached a settlement with the IRS on the ongoing battle over tax opinions rendered by the firm. This dispute (both the civil suits and the IRS prosecution) has for the most part caused the firm to shut down, although that wind down has been going on (as have the disputes) for several years and is not yet completed.
"Between 1998 and 2003, the firm’s Chicago-based tax shelter practice provided hundreds of legal opinion letters in support of tax shelters the Internal Revenue Service subsequently deemed illegal. The criminal probe of the firm by the Southern District U.S. Attorney’s Office followed several civil suits by tax shelter investors whose claims the firm has agreed to settle for $85 million. "
...
"The firm, which once had 600 lawyers and offices nationwide, has since lost two-thirds of its headcount and has closed several offices. In announcing the agreement today, Southern District U.S. Attorney Michael Garcia said Jenkens & Gilchrist had advised his office that it would close its last office and cease practicing law by the end of the month. Mr. Garcia said the firm’s plans were a factor in its being offered the non-prosecution deal. "

http://www.nylawyer.com/display.php/file=/news/07/03/032907v

and here is a link to the full article from the New York Law Journal:

http://www.law.com/jsp/nylj/PubArticleNY.jsp?id=1175159036352

[free subscription may be required to view these articles]

Mike

Citigroup reports that Vonage Holding Corporation has had the “worst performing US initial public offering in the past, year” and could possibly filed for bankruptcy protection by 2009.

Citigroup analyst Michael Rollins reduced his rating from “hold” in a note to investors Monday and said ongoing patent litigation increases risk to the company’s profitability. He also slashed his stock price target to $2.50 from $7.

Shares fell12 cents today and have dropped a total of 81% since it debut.

The complete article can be found at:

http://www.boston.com/business/technology/articles/2007/03/28/analyst_vonage_may_go_bankrupt/

Pam

As the real estate market softens in certain areas of the country and in certain markets within those geographic area, there are more stories coming out about speculators. Here is one article which relates to the Houston Condo market and points out the number of speculators who have gotten burned by the down turning market. Here is a quote from the Houston Chronicle:

"Last year, nearly 400 people who owned more than one home in the Houston area accounted for more than 1,000 foreclosures, an analysis of local data shows.

That's up from about 150 investors who were responsible for about 350 foreclosures two years earlier, according to a Houston Chronicle analysis of data provided by The Woodlands-based Foreclosure Information & Listing Service.

Although it's unclear how big a factor the novice investor is in the current market, it is clear that defaults among multiple homeowners contributed to a 44 percent increase in foreclosures in Harris, Montgomery and Fort Bend counties. Foreclosures shot up to 11,983 in 2006 from 8,300 in 2004.

"Unsophisticated investors always make mistakes because they speculate instead of buying something that's a good investment," said Del Walmsley, president of Lifestyles Unlimited, a real estate investor and mentor group in Houston. "They go out and buy anything."
...
Many first-time investors lost their properties after getting entangled in questionable deals.

The problem has become so pervasive in Houston that the FBI has created a special unit here to crack down on mortgage fraud.

In January, the Harris County District Attorney's Office indicted eight people, from real estate agents to loan officers, in connection with alleged mortgage fraud that entangled 300 homes worth more than $40 million. About 70 of those homes were in ZIP code 77004 just south of downtown. Others were concentrated in Missouri City.

Chris Robison, 39, said she recently filed a complaint with the FBI claiming she got lured into buying a house in Pearland and a condo downtown that were doomed investments from the start.

"I signed the loans. I didn't know what I was doing," she said. "Now my credit is ruined."

She said she agreed to buy two properties that others had promised to manage, rent and eventually sell for a profit that they would split. They would even make her mortgage payments.

All Robison had to do was sign the loan papers, she said. So she did.

But eventually she began to get default notices in the mail, the homes were foreclosed, and her credit score of 667 had plummeted. The homes she bought for a total of $942,500 were 100 percent financed, leaving her with thousands in monthly payments she couldn't afford.

And here is a link to the full article from the Houston Chronicle:
http://www.chron.com/disp/story.mpl/business/4658167.html

Mike

The FBI announced on Wednesday that it was investigating possible fraud in Beazer Homes USA Inc.’s mortgage lending practices and other financial transactions. The Atlanta based company is the subject of investigations by the FBI, US Attorney’s office, IRS and the US Department of Housing and Urban Development.

A spokesman for the FBI’s Charlotte, NC field office said the inquiry began last week and involves “fraud in general” and is related to corporate, mortgage and investment issues. Last week, the Charlotte Observer reported that of 2,900 Beazer homes built in the Charlotte area between 1997 and 2006, 388 have foreclosed. The rate of foreclosure is 13 percent, much greater than the national average of less than 3%. The newspaper also reported of four examples where the income and debts of borrowers were misstated on their applications for government-insured loans.

Beazer has operations in more than 21 states. After the news of the investigation, Beazer shares fell $2.74, or 8.7%, to $28.67 in morning trading on the New York Stock Exchange. Beazer lost $59 million in its first quarter, which ended December 31.

Here is a link to the article:
http://www.boston.com/business/articles/2007/03/28/beazer_shares_sink_amid_federal_probe/

Ray

As the baby boomer generation ages, one side effect may be the fall in popularity (and prices) of the large suburban houses which have been a large part of the increase in average housing prices over the last ten years. As with all things related to real estate, this prediction will surely come true in certain areas of the country but likely not others. Note that the referenced article is from The Boston Globe and in Boston the housing industry is different than in Texas, for example. Here is a quote from the article:

But who’s going to buy [these large houses]? Generation X, a.k.a. the baby bust, is largely uninterested in sprawling suburban homes. And there aren’t nearly as many Xers as there are boomers. There just won’t be enough potential buyers unless the Xers and the older members of Generation Y are joined by a flood of new immigrants who both want the boomers’ houses and are able to pay for them. If that doesn’t happen, prices at the high end will sink.
...
Many boomers, particularly those in Massachusetts, now have their net worth tied up in their houses. “Anybody who bought a house in a good suburb in this state more than a few years ago is close to being a millionaire because of it,” says Case, who is 60 and includes himself in that group. The house he bought in Wellesley nearly 16 years ago for $392,000 is now worth “clearly a million and probably a little more.” He’s not selling (at least not at the moment), but overall, he says, other boomers in Massachusetts are starting to find it difficult to sell their suburban homes at the prices they’re convinced they deserve. Those with large houses, rather than small split levels or Capes, have the greatest challenge. In some Boston suburbs, those houses are already staying on the market longer than they would have a year or two ago.
...
If Gen X can’t buy all the homes and Gen Y can’t either, who else is there? At the moment, no one. That’s why the hopes of many economists are riding on a future influx of immigrants. Political debate often focuses on immigrants “taking” the jobs of the native-born, but in this case, they’ll be coming to their rescue. Immigrants are already starting to make their presence known on the real estate market, says Case: “If you talk to brokers, and you ask them what’s different now from 10 years ago, they say they can’t pronounce the names of a lot of the buyers anymore.” At least 33 million immigrants now live in the United States, and there may be many more. But even factoring in illegal aliens (estimates of illegal immigrants are notoriously unreliable, but they range from 7 million to 20 million), the numbers in the future will be “a drop in the bucket when it comes to replacing the baby boomers,” says Chung. Remember, there are 78 million baby boomers nationwide.

And here is a link to THE REAL ESTATE GENERATION GAP from the Boston Globe:
http://www.boston.com/news/globe/magazine/articles/2007/03/25/the_real_estate_generation_gap/

Mike