Builder Beazer Homes USA Inc. (NYSE: BZH) announced this week that the U.S. Securities and Exchange Commission is investigating whether company officials or business entities have violated federal securities laws, adding to its list of legal troubles.
The company received notice May 1 about an informal SEC inquiry, according to a Thursday announcement. Also, a class-action lawsuit was filed against the company April 30 on behalf of current and former participants and beneficiaries in Beazer’s employer-sponsored retirement plan.
The complaint, filed in the Atlanta Division of the U.S. District Court for the Northern District of Georgia, “alleges breach of fiduciary duties, including those set forth in the Employee Retirement Income Security Act as a result of the investment of retirement monies held by the 401k plan in common stock of Beazer Homes at a time when participants were allegedly not provided timely, accurate and complete information concerning Beazer Homes,” company President and CEO Ian J. McCarthy reported in an SEC filing.
“At this time, Beazer Homes has found no evidence to support the allegations and intends to vigorously defend this action,” according to the document.
In a separate matter, the U.S. Attorney’s Office for the Western District of North Carolina in March issued a grand jury subpoena to Beazer “seeking the production of documents focusing on our mortgage origination services.” The office launched its investigation following a series of articles that appeared in the Charlotte Observer newspaper questioning the role of Beazer’s mortgage lending subsidiary in financing company-built homes. The newspaper had reported in March that at least 388 of the 2,900 homes built by Beazer in Mecklenburg County, N.C., between 1997 and 2006 have foreclosed.
The newspaper articles alleged that some of the company’s practices violated federal lending rules.
Additionally, class-action lawsuits have reportedly been filed against Beazer by homeowners and shareholders.
The company reported in its latest quarterly SEC filing that a shareholder class-action complaint was filed against some current and former executive officers and directors on April 16 charging that the company committed Securities Exchange Act violations and breached its fiduciary duties “based on matters related to the company’s mortgage origination business.”
Also according to the latest quarterly report, “The company has … recently learned that a second putative homeowner class-action lawsuit has been filed in South Carolina.”
The company’s audit committee “has initiated an independent internal review of Beazer Homes’ mortgage origination business and related matters and has retained independent legal counsel and an independent financial consultant to assist with that review,” according to the report.
In a conference call related to the company’s earnings report, McCarthy noted the various investigations and class-action lawsuits stated that the company is “fully cooperating with the U.S. Attorney in the document production request” and intends to defend itself against all of those lawsuits.
Leslie H. Kratcoski, a Beazer spokeswoman, said today that Beazer does not have any additional public statement about the latest lawsuit and the company’s internal investigation beyond what was disclosed in its SEC filings.
On April 26, Beazer Homes reported a net loss of $43.1 million for the quarter ending March 31. The company had total revenues of $826.3 million for the quarter, compared with $1.27 billion for the same quarter of 2006.
The company reported 4,085 new orders for homes during the quarter, compared with 4,224 in prior year’s quarter. The company’s 29 percent cancellation rate for the quarter was down from 33 percent in the same quarter last year.
Beazer’s stock was trading at $33.44 per share as of 2:08 p.m. today, down 97 cents from its opening price of $34.41. The share price hit a four-year low when it closed at $27.97 April 4 — the price was $31.41 on March 27 — the day that Beazer reported the U.S. Attorney’s Office investigation.