On Wednesday, federal investigators filed mortgage and accounting fraud charges against Beazer Homes USA (NYSE: BZH). The homebuilder will be able to escape prosecution because it agreed to pay $50 million to victims and to accept responsibility for its improper actions.
Beazer found itself charged thanks to its participation in a scheme designed to fraudulently increase its profits and sell homes. Reportedly, the company also participated in an accounting scheme that was designed to "smooth earnings." Thanks to these schemes, homebuyers defaulted on their loans and some neighborhoods saw home values plummet thanks to loan defaults. State and federal investigators have scrutinized Beazer since March 2007, finding that the company's "aggressive sales tactics" contributed to an "unusually high foreclosure rate in many of its local starter-home communities."
As part of Beazer's agreement, it "accepts and acknowledges that it is responsible for the criminal acts of its former employees." Beazer's CEO 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." Despite the settlement, the federal probe will continue, and it could look into Beazer's officials.
It is great that Beazer is paying some restitution to its victims, but what about the economy as a whole? Isn't the housing downturn what is taking most of the blame for the economic crisis? If these foreclosures were part of the greater collapse (and I am sure they were), why are we letting the company off with a veritable slap on the wrist? I would love to see the government make them pay, but it won't happen. The feds will be satisfied with the pittance the company will pay to those it schemed against, and so will some investors -- but they shouldn't be. Perhaps it is a bit spiteful on my part, but there are some that should be made an example of, and I feel Beazer is one of them.
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