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UPDATE 3-Lennar shares plunge after website questions deal

(Adds CEO comment, updates shares)

NEW YORK/CHICAGO, Jan 9 (Reuters) - Shares of Lennar Corp LEN.N, the No. 2 U.S. homebuilder, plunged on Friday after a letter accusing the company of misusing a joint venture partner's funds in the late 1990s surfaced on the Internet.

The letter to the U.S. Securities and Exchange Commission, the FBI and Internal Revenue Service from California pastor Barry Minkow, who has served time in jail for stock fraud, concerned a high-end California housing and golf joint venture between Lennar and developer Briarwood Capital LLC.

It was posted on Minkow’s website, www.frauddiscovery.net.

Lennar, which denied any wrongdoing, was accused in the letter of wiring to one of its subsidiaries a $37.5 million contribution to the project from Briarwood’s predecessor firm without getting the required written permission.

Minkow claimed that the dealings between Lennar and Briarwood, as described in his letter, were part of a larger pattern in which Lennar treats its joint ventures “like a Ponzi scheme, pledging older joint venture interests to leverage themselves into newer joint venture relationships.”

Lennar CEO Stuart Miller told CNBC the notion that his company was using money from joint ventures to build up its balance sheet was “just not true.”

Lennar earlier issued a statement saying the accusations were “false and inflammatory” and that Minkow was an agent of Nicolas Marsch III, whose civil litigation against Lennar was recently dismissed by a California Superior Court judge.

Lennar’s shares, which fell as much as 28 percent, closed off their lows after the statement and Miller’s TV appearance. They last traded at $9.15, down 19.9 percent.

Lennar also said in its statement that it was investigating possible wrongdoing by Marsch and Minkow, saying they may have tried to illegally obtain information relating to Marsch’s legal proceedings against Lennar.

Minkow, who served more than seven years in jail for stock fraud and now works for the Fraud Discovery Insitute, responded by telling Reuters that his paying client in the case was Briarwood Capital.

He said that he and his institute were not short Lennar shares and that they had not bought put options on Lennar.

The emergence of the letter drove down Lennar’s shares in early trading, said Jon Najarian, a founder of website optionmonster.com.

“We believe the comments on this website is the catalyst for this harsh sell-off in Lennar shares and where 61,000 puts changed hands in the first hour of trading,” Najarian said.

Investors buy puts to either protect their stock positions or to bet on a further fall in stock prices.

Minkow’s allegations were “likely less than credible,” Citibank analyst Josh Levin wrote in a note to clients.

Lennar’s management had a reputation for being tough and shrewd negotiators, he said, but he had never heard that it was dishonest. Neverthless, he advised shareholders to stay on the sidelines as Lennar’s joint ventures were a “black box”.

“The consequences of being wrong could be severe,” said Levin, who rates Lennar’s shares “hold/speculative.” (Reporting by Helen Chernikoff and Doris Frankel; Editing by Ted Kerr)

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