The situation involving St. Joe, which is a Florida land company, and its shareholder the Fairholme mutual fund led by Bruce Berkowitz, is a drama we have been following here for some time (see the earlier posts here, here, and here.) The latest development is that St. Joe shares are down about 6% this morning, on the July 1 after-close news that the SEC had launched a formal investigation of St. Joe.
This latest development strikes me as newsworthy on two front. First, since the company has a market capitalization on the order of $2 billion, one could look at the development as the Securities and Exchange Commission destroying one-twentieth of that — or about $120 million in shareholder value — with one investigative action. This from a regulatory agency that is supposed to protect shareholders, not destroy the value of their investments. Since the value of the company is mainly the land, with its development and timber value, this is a curious development — you'd think that an acre of land in Florida would be worth whatever it is worth, regardless of whether an SEC lawyer is standing on it or not. One could respond that it's not the SEC's fault, it's management's fault for getting itself investigated. But the SEC usually doesn't say much about what triggers its investigations. Sometimes, as in the case of MBIA, regulators take action only after being begged to do so by short-sellers betting against a company's stock.
The second point is that in the case of St. Joe, fund manager David Einhorn announced in October 2010 that the stock was worth $7 a share. Even after this morning's 6% drop, the stock is trading at about $19.50 a share — about where it was at the time of Mr. Einhorn's announcement, maybe 50 cents higher.
I don't own St. Joe directly or, as far as I know, indirectly, and I'm not shorting it. I might buy some in the future if the price gets low enough, but that's true of lots of things. Ordinarily I wouldn't be much interested in its price. What I am interested in, a lot, is the ability of the press, government regulators, and short-sellers to work together to drive down the price of a stock. It's one thing when this happens to a relatively small Florida real estate company. But when it happens to, say, a national institution like the Washington Post, it's something else. And when it happens to Fannie Mae or AIG or Lehman Brothers or Washington Mutual or Bear Stearns and the result, in part, is a financial crisis that destroys trillions of dollars of savings and leaves millions of Americans jobless, that's something else, too.