The SEC has charged the former chief accounting officer of Beazer Homes with conducting a fraudulent earnings management scheme for over five years and misleading the home builders outside auditors and internal accountants.
Separately, the company also settled mortgage and accounting fraud charges with the Justice Department and agreed to pay $50 million into a restitution fund as part of a deferred prosecution agreement. It also agreed to pay $5 million to the Department of Housing and Urban Development.
The SEC alleged that Michael T. Rand of Sandy Springs, Ga., fraudulently decreased Beazers reported net income by recording improper accounting reserves during certain periods between 2000 and 2005 in order to meet or exceed analysts expectations for Beazers diluted earnings per share and maximize yearly officer and senior employee bonuses. According to the SEC, Rand began reversing these improper reserves beginning in the first quarter of fiscal year 2006 in order to offset Beazer's declining financial performance.
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. Then when Beazers business declined, he fraudulently reversed those secret reserves and appeased financial analysts, enticed new investors, and most importantly earned himself an undeserved lucrative bonus.
The SEC also alleges that in fiscal year 2006 and the first two quarters of fiscal year 2007, Rand improperly recognized revenue from the sale and leaseback of certain model homes on Beazers financial statements and used secret side agreements in order to hide his misconduct from Beazer's outside auditors. Cumulatively, Rand's actions caused Beazer to understate its income in SEC filings by approximately $63 million during fiscal years 2000 to 2005, representing approximately 7 percent of Beazer's cumulative actual restated net income of $955 million for the period.
Rands fraudulent actions also allegedly caused Beazer to overstate its income and understate its loss by a total of $47 million during fiscal 2006 and the first two quarters of fiscal 2007, representing 20 percent of Beazers cumulative actual restated net income of $232 million for the period, according to the SEC.
The SECs complaint, filed in U.S. District Court for the Northern District of Georgia, charges Rand with violations of the antifraud, reporting, books and records, and internal control provisions of the federal securities laws, and seeks a permanent injunction, disgorgement of Rands ill-gotten gains plus prejudgment interest, and a financial penalty.
The SEC also seeks a court order barring Rand from acting as an officer or director of any public issuer.
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