Beazer 401(k) Participants Sue Over Sub-Prime Mortgage Losses

May 1, 2007 ( - The pension plan participants of an Atlanta home builder, whose mortgage subsidiary was involved in the risky subprime lending market, sued the fiduciaries of their 401(k) plan Monday, charging they allowed participants to invest in company stock when it was imprudent to do so.

The suit was filed on behalf of what could be a 5,100-members class by plaintiff Brenda Miller against Beazer Homes USA, Inc, which, in addition to building homes in the U.S., also offers mortgages through its subsidiary, Beazer Mortgage Corporation.

The complaint by Miller alleges the company engaged in improper sub-prime lending practices, that financial growth of the company was falsely inflated by improper lending to low-income borrowers and that many of the company’s borrowers would default on their loans.

The Beazer Homes USA, Inc Company Stock Fund was one of the investment options included in the company’s 401(k) plan. According to the complaint, about $56,912,902, or 43.65%, of the plan’s assets were invested in company stock at the end of 2005.   

The price of company stock fell by 17% in 2007 when news reports revealed that the company’s sub-prime operations were being investigated by the Federal Bureau of Investigation, the Department of Housing and Urban Development and the Internal Revenue Service.

Miller alleges that the fiduciaries of the plan – which include company executives, the plan administrator and the benefits administration committee – failed to act in the best interest of participants by allowing for their retirement assets to continue to be invested in company stock, even when they knew the company was conducting risky operations in the mortgage market.

The complaint also claims that if participants would have been notified of the company’s lack of controls, they would have divested all or part of their plan assets in company stock.    

Miller claims Beazer breached its fiduciary duties by:

  • Misrepresenting and failing to disclose material facts to the participants about the administration of the plan;
  • Failing to act in the sole interest of the participants and their beneficiaries;
  • Failing to manage the plan’s assets with the care, skill, prudence or diligence or a prudent person under the circumstances; and
  • Allowing participants to continue investing their retirement money in company stock when it was imprudent to do so and when the participants weren’t given timely, accurate and complete information concerning the company as required by law.

The Beazer suit follows a similar charge by the plan participants of Fremont General Corp. who also say company directors engaged in lending practices that were unsafe and should have acted to prevent the loss of millions of dollars from retirement and stock ownership plans (See  Fremont Employees File Suit Over ESOP and Retirement Plan Losses ).