Beazer to pay up in mortgage fraud case

Beazer Homes USA said Wednesday it has agreed to pay up to $55 million in restitution and expenses related to a mortgage fraud scheme in North Carolina. Federal authorities agreed not to prosecute the company as long as terms are met.

Separately on Wednesday, the Securities and Exchange Commission filed a civil complaint against a former Beazer executive, alleging he was responsible for earnings fraud that led to bonuses and profits on stock sales.

Atlanta-based Beazer said it reached agreements on the mortgage fraud case with the U.S. Attorney’s Office for the Western District of North Carolina and the U.S. Department of Housing and Urban Development. The investigation has mainly involved Beazer developments in the Charlotte area.

Federal investigators say the company’s mortgage origination business used a range of illicit lending practices to boost sales.

The SEC complaint said Michael T. Rand, Beazer’s former chief accounting officer, ran a “fraudulent earnings management scheme” and misled internal and external Beazer auditors in the process.

The SEC, which filed its complaint in federal court in Atlanta, is asking for restitution of money Rand made as a result of the fraudulent activity, along with other penalties, said Katherine S. Addleman, regional director of the Atlanta office.

“In this case that would be the stock sale proceeds and bonuses,” she said. “We can tell you that the total gross proceeds from the stock sale were over $3 million and his bonuses were over $1.7 million, but we can’t estimate what the court might impose in terms of a penalty number.”

Rand, who was fired by Beazer in June 2007, did not respond to a phone message at his home Wednesday.

In the mortgage fraud case, money paid to the government by Beazer is to be shared with certain North Carolina homeowners who can prove they were victimized in the fraud scheme perpetrated through Beazer Mortgage Corp., a Beazer news release said.

Beazer, which has struggled amid the housing slump and the federal probes of its business practices, has since shut down the mortgage unit.

“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 Chief Executive Ian McCarthy said in a statement.

The company entered a “deferred prosecution” agreement with the North Carolina U.S. Attorney’s office, which agreed not to prosecute Beazer as long as all terms are met.

The company must contribute $7.5 million to a restitution fund before its 2009 fiscal year is over. After that, for the next three years and a portion of the 2014 fiscal year, it will contribute $1 million or up to 4 percent of pre-tax profit, whichever is greater. If at the end of five years restitution does not reach $48 million, the period will be extended until it does.

The agreement with HUD involves an immediate payment of $4 million, which is to be used to “resolve civil and administrative investigations,” according to the news release. Beazer will also be required to pay $1 million on the first anniversary of the agreement.