SEC Investigating Fairholme Investment

The Securities and Exchange Commission is investigating the St. Joe Co., a Florida real estate company that is one of The Fairholme Fund's investments.

Although Fairholme owns about 30 percent of St. Joe's stock, the investment is just 3 percent of the fund's assets. Fairholme manager Bruce Berkowitz was named chairman of St. Joe's board in March after a bruising battle for control of the company.

St. Joe disclosed on July 1 that the SEC is probing the company over a number of issues, including how the company values its 600,000 acres of land in the Florida panhandle. The probe also names Berkowitz.

"We are big fans of the SEC and we are big fans of full disclosure," Berkowitz told InvestmentNews this week. "This is a normal part of doing business."

Indeed, we believe that this should be expected. As a value investing fund, one avenue Fairholme pursues is troubled companies. So we're not surprised to find that Berkowitz and the fund are in the proverbial frying pan.

Could there be fraud involved? Yes. But we don't believe so. And in any case, Fairholme's St. Joe investment will not have a meaningful impact on the Bradway Strategic Portfolio. It's 3 percent of Fairholme, and Fairholme is about 10 percent of our portfolio.

We will be watching how the investigation unfolds, paying particular attention to how Berkowitz acts and how he communicates with us and other Fairholme shareholders. If he is straightforward and as open as he can be while under investigation, as we expect, this will give us confidence about him and the fund. If not, we will evaluate our investment in Fairholme.

Meanwhile, if you'd like more information, you can see this story in InvestmentNews and this story from Bloomberg.