Beazer Homes, SEC reach settlement on earnings

Beazer Homes and the Securities and Exchange Commission have reached a settlement in the federal investigation of the Atlanta-based home builder’s accounting practices.

Beazer agrees to “cease and desist” from violating federal securities laws and regulations but will not have to pay a fine.

The SEC said Beazer improperly manipulated, or smoothed, its earnings over several years by hiding away money in accounts.

During the boom times of 2000 to 2005, Beazer concealed some of its earnings in rainy day funds while still meeting analysts’ expectations, the SEC alleged. And when the market began to turn south in 2006, Beazer used those reserves to offset losses to paint a rosier picture.

Beazer improperly reserved and later withdrew money in the “land inventory accounts” and the “house cost to complete accounts,” the SEC said.

“Squirreling away is a perfect phrase for what they did,” said Katherine Addleman, the SEC’s regional director. “The real impact was to deprive the shareholder and the market information about the health and profit of the company.”

Those practices and other errors led Beazer to launch an internal investigation and to restate several years of earnings.

The SEC said the improper reserves meant Beazer understated its net income by $42 million from 2000 to 2005. And it understated its losses during the first half of fiscal year 2007 by $1 million.

Beazer also broke accounting rules in the method it used to sell, then lease back, its model homes, the government said. As a result, it overstated its fiscal year 2006 revenues by $117 million and net income by $14 million. In the first half of fiscal year 2007, it understated revenue by $2.6 million and overstated its net loss by $3.9 million.

Leslie Kratcoski, Beazer’s vice president for investor relations and corporate communications, said, “We cannot comment on the specifics beyond our press release.” The company said in its release that it does not admit or deny wrongdoing.

Beazer and its subsidiary, the now-defunct Beazer Mortgage Corp., are also being investigated by the U.S. Attorney’s Office in the Western District of North Carolina and other state and federal agencies. Those inquiries arose after complaints in Charlotte about a large number of foreclosures in Beazer communities.

Beazer was not fined by the SEC because it has cooperated with the investigation, has taken corrective action and is in a precarious financial position, Addleman said. The SEC considers how a financial penalty might affect current shareholders, she said. Beazer’s share price closed Wednesday at $5.91, up a nickel.

“What do you gain from beating them down further?” asked Bert Ely, an accountant and adjunct scholar with the libertarian Cato Institute. Ely said the settlement was equivalent to saying “go forth and sin no more.”

Beazer violated a section of the Securities Act that prohibits false or misleading statements, or intentional omissions, the SEC said. It also violated the Exchange Act and Rule that prohibits fraud in the purchase or sale of securities.

Addleman said the SEC’s investigation of the company is over, but it’s still looking into the activities of company officers.

She said the government launched the investigation last year.