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Beazer Homes Enters Deferred Prosecution Agreement, Agrees to Pay $53 Million
The American Lawyer
July 06, 2009
The Department of Justice, under pressure to mete out blame for the credit crisis, has wrapped up a deferred prosecution agreement with Beazer Homes USA. The Atlanta-based company has been under scrutiny since March 2007, when the Charlotte Observer published a series of articles looking at how Beazer Mortgage Corp. had been issuing questionable mortgages to local homeowners. As part of a deferred prosecution agreement (pdf), the company agreed to pay $53 million in restitution and penalties and said it "accepts and acknowledges" that it was responsible for criminal actions taken place by employees at its now-defunct mortgage arm.
Cahill Gordon & Reindel partner and former Manhattan U.S. Attorney David Kelley negotiated the settlement. His main job seemed to be to make sure the company wouldn't collapse Arthur Andersen-style because of an indictment. Beazer, in the deferred prosecution agreement, said it entered the deal in part because any additional criminal penalties or requirements for payments would threaten its solvency.
The company has 15,000 employees and full-time contractors who the company says in the agreement weren't involved in the wrongdoing. Beazer has a market capitalization of roughly $75 million. Its shares at noon Thursday were trading at below $2, down from nearly $75 a share in July 2006, before the market meltdown. It posted a $952 million loss in 2008, the Charlotte Observer reports.
The Department of Justice said in a press release that Beazer will pay up to $48 million to homeowners as restitution. It will also pay $5 million to the U.S. Federal Home Administration. Possibly because of worries about the company's solvency, though, Beazer is only required to immediately pay $14 million to the government and homeowners, the agreement says.
We reached out to Cahill's Kelley but didn't hear back. Beazer chief executive Ian McCarthy said in a statement: "We deeply regret these matters and have used what we have learned to strengthen our control and compliance culture and reinforce our absolute commitment to act according to the highest standards of ethical conduct throughout our organization."
Beazer previously settled in September 2008 a SEC investigation into its mortgage unit. In that settlement, it agreed to a cease and desist order but was not required to pay a monetary penalty. The order lists Cahill's David Januszewski as Beazer's lawyer in the matter.
The DOJ's deferred prosecution agreement says Beazer's continued cooperation will be mediated by lawyers at Alston & Bird, who have been representing the board of director's audit committee and previously conducted an internal investigation of the company. (The internal investigation was released in October 2007.) As part of the deal, Beazer agreed to help prosecutors and other federal agencies investigating the company and its current and former officers, employees, consultants and contractors.
One Beazer employee already under scrutiny is the company's former chief accounting officer, Michael Rand. The Securities and Exchange Commission on Thursday sued him in federal district court (pdf) in Atlanta accusing him of fraudulently manipulting the company's reserves.
"Michael Rand orchestrated an old-fashioned 'cookie jar' earnings management scheme where he hid from view over $60 million in so-called reserves," said Robert Khuzami, director of the SEC's division of enforcement, in a statement. "Then when Beazer's business declined, he fraudulently reversed those secret reserves and appeased financial analysts, enticed new investors, and most importantly earned himself an undeserved lucrative bonus."
Tony Powers at Rogers & Hardin in Atlanta is representing Rand. He did not return a call seeking comment.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
