Washington, D.C., July 1, 2009 – The Securities and Exchange Commission today charged the former chief accounting officer of Atlanta-based home builder Beazer Homes, USA, Inc., for conducting a multi-year fraudulent earnings management scheme and misleading Beazer’s outside auditors and internal Beazer accountants in order to conceal his wrongdoing.
The SEC alleges that Michael T. Rand of Sandy Springs, Ga., fraudulently decreased Beazer’s reported net income by recording improper accounting reserves during certain periods between 2000 and 2005 in order to meet or exceed analysts’ expectations for Beazer’s diluted earnings per share (EPS) and maximize yearly officer and senior employee bonuses. 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 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.”
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 Beazer’s 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. Rand’s fraudulent actions 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 Beazer’s cumulative actual restated net income of $232 million for the period.
The SEC’s 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 Rand’s 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.
The Commission acknowledges the assistance of the U.S. Attorney’s Office of the Western District of North Carolina. The SEC’s investigation is continuing.
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For more information, contact:
Katherine S. Addleman
Regional Director, SEC’s Atlanta Regional Office
William P Hicks
Regional Trial Counsel, SEC’s Atlanta Regional Office
Stephen E. Donahue
Assistant Regional Director, SEC’s Atlanta Regional Office