Michael Rand, Beazer Homes USA's former chief accounting officer, was indicted this week by a federal grand jury, arrested, and is being held on 11 counts on federal charges related to wrongful accounting practices and attempts to conceal them from investigators.
Rand is scheduled to go before a federal judge Friday in Asheville, N.C., for a hearing on charges that range from conspiracy to defraud the United States to securities fraud.
A Beazer Homes representative reached on Thursday declined to comment on the case, saying that it relates to charges against a former employee, separate from the company.
The arrest is the most recent in a string of investigations and events unleashed in March 2007, in the wake of a series of stories published in the Charlotte Observer detailing an unusually high rate of home foreclosures in Beazer-built neighborhoods around Charlotte, N.C.
The FBI, the Attorney General of the Western District of North Carolina, and the U.S. Securities and Exchange Commission (SEC) all then launched investigations into the allegations of mortgage fraud. What they uncovered were other alleged misdeeds related to Beazer's accounting practices.
In June 2007, Beazer's board of directors fired Rand for cause after independent legal counsel, hired by Beazer to investigate the fraud charges, unearthed evidence that Rand had committed accounting irregularities and destroyed evidence.
Rand is charged with conspiracy to defraud the United States, obstruction of official proceeding, mail/wire fraud conspiracy, securities fraud for manipulative and deceptive devices, false statement to a bank on loan and credit applications, obstruction of justice for witness tampering, destruction, alteration or falsification of records in federal investigations, and intimidation or force against a witness.
The indictment accuses Rand (along with an unnamed company "co-conspirator") of accounting fraud conspiracy for going against the company's auditors' advice and making an agreement with an unnamed company to buy Beazer's model homes and then lease them back to Beazer. The arrangement allowed Beazer to book the sale of the home while still using it as a model. That arrangement in itself might pass accounting-rule muster except that Rand is accused of having a "hidden oral side agreement" with the company to share the profits from the sale of the house when the investor sells it. The indictment says Rand conspired with another Beazer unnamed employee and an unnamed company that provided investors to buy the model homes.
The other accounting practice the indictment accuses Rand of is "cookie-jar accounting." It says that between 2000 and 2007, Rand worked to smooth the company's earnings so they would meet goals by squirreling away extra profits in "reserve" accounts during good quarters and pulling them back out in quarters when revenues were expected to fall short.
As evidence, the indictment offers e-mails between Rand and company division executives among others.
The false financials that resulted from the accounting practices were then presented to Wachovia Bank when the company took out a $35 million loan for Beazer to use for the West Morehead project in Charlotte, on which Beazer has since defaulted.
Rand is accused in the indictment of obstruction of justice and destruction of records by deleting or attempting to delete more than 4,000 e-mails from his Beazer e-mail account from March 23, 2007, to March 30, 2007, after news leaked out that Beazer was being investigated.
When investigators questioned him about the e-mail deletions, the indictment said he first denied the deletions and then offered several other stories about the deletions.
Rand's attorney did not immediately return BIG BUILDER's request for an interview Thursday.
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.