Legal News

Did Mortgage Execs Get Off Easy? Scrutinizing the Beazer-DOJ Deal

By Amir Efrati

In today's NYT, Floyd Norris takes a closer look at the Justice Department’s treatment of Beazer Homes, which last week entered into a so-called deferred prosecution agreement in which it paid a penalty and made concessions in order to avoid criminal prosecution. Here is a prior LB post on the DPA.

Beazer didn't deny allegations that it committed mortgage-fraud and other accounting-fraud charges. Prosecutors said Beazer ignored income requirements in making loans to unqualified buyers and effectively stole money from home buyers, among other things. Beazer's chief accounting officer during this time was eventually fired and was separately charged with civil fraud by the Securities and Exchange Commission last week.

Norris, an opinion columnist, calls the deferred-prosecution agreement, which requires Beazer to pay at least a $15 million penalty, "remarkably generous," in part because Beazer's CEO, COO and members of the board were allowed to keep their jobs. DOJ said it didn't seek more money because it might have risked driving the company into bankruptcy. It also praised the company for getting rid of people responsible for the crimes.

Norris isn't satisfied. If neither the CEO, Ian McCarthy, nor any of Beazer's board members "had any inkling of what was going on, they were not doing a very good job, to say the least," he wrote.

Norris says the Beazer agreement sends the wrong message to corporate executives: "If a boss can preserve his deniability about crimes committed by his company - perhaps by showing little curiosity about just how the profits are being earned when he is taking in millions from cashing in stock options - then he can escape being held accountable if the crimes are eventually uncovered."

Beazer declined to comment to the Law Blog. We reached out to the U.S. Attorney's Office for the Western District of North Carolina, which handled the case for DOJ, and will let you know if they respond.

LB readers, what say you? Prosecutors have lots of power to effect changes in executive suites at firms that commit crimes. (See this example.) How often should they do so?

Correction: A prior version of this post incorrectly said the company’s CFO during the time of the fraud was later fired and sued by the SEC.

Full post as published by Law Blog - WSJ.com on July 10, 2009 (boomark / email).