Did Beazer Cross the Line Too Far?

Beazer Homes USA Inc. (BZH-NYSE) has found itself in a pickle if there is truth to reports.  The company is reportedly being investigated for fraud in its lending practices, some financial transaction, and other practices.  The problem is that this is listed as the North Carolina offices of the FBI, the IRS, and the DOJ; plus the Inspector General of Housing and Urban Development is also part of the group looking into Beazer.  Its CFO just left the company last week to becoem CEO of Kaydon (KDN-NYSE).

Business Week is reporting this story, but the news has been lightly carried by CNBC, Dow Jones, and Reuters.  It will be interesting to see all of the details in the coming day because Business Week is not exactly known for breaking this sort of news.  The article notes a much higher foreclosure rate in in some Beazer developments that was noted in The Charlotte Observer.

If this is genuinely the case, then traders may be worried that if fraud or crimes happened at one then the same may be elsewhere.  As of 4:45 PM BZH shares were down 11.7% at $27.75 in after-hours trading, and that is after closing down 2.8% at $31.41 today.  Lennar (LEN) shares are down 1% to $44.00 after-hours, KB Home (KBH) shares are unchanged but indicated down 1%, and Toll Brothers (TOL) shartes are down another 1.7% in after-hours trading.

Because of the incentives, paid closing costs, cash rebates, and the like, there may be some here not overly surprised.  But if the foreclosure rates are this bad, it would make you wonder just what else they were really up to.

Jon C. Ogg
March 27, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.