Beazer Legal Woes Continue with Formal SEC Investigation

July 24, 2007 ( - Beazer Homes USA Inc. has announced the Securities and Exchange Commission (SEC) has begun a formal inquiry to determine if any person or entity related to the firm has violated securities laws.

The Associated Press reports that Beazer disclosed in May that an informal inquiry by the SEC had begun. While neither the May nor the current notice indicated details of the inquiry by the SEC, Beazer did announce in May it had been informed of a lawsuit filed by participants of its 401(k) plan.

The lawsuit, filed on behalf of former and current participants, charged that fiduciaries of the 401(k) plan allowed participants to invest in company stock when it was imprudent to do so (See Beazer 401(k) Participants Sue Over Sub-Prime Mortgage Losses ). The complaint contains allegations 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.

Previously, Beazer Homes said the audit committee of its board of directors had launched a review of the company’s mortgage origination business related to a federal fraud investigation and found no evidence to support allegations of possible fraud in the company’s mortgage lending practices and other transactions, according to the AP. The company also previously announced it had received a subpoena from federal prosecutors in western North Carolina focused on the company’s mortgage origination services.