Risk & Compliance

Beazer Investors Get Their Say on Disclosure

A resolution demanding more information on the company's mortgage investments passes SEC muster for inclusion in proxy materials.
Stephen TaubDecember 12, 2007

A union activist investor has won the right to push for more disclosure by Beazer Homes USA.

The Securities and Exchange Commission ruled that the embattled homebuilder must include in its 2008 proxy materials a shareholder resolution submitted by the Laborers’ International Union of North America (LIUNA) demanding greater disclosure of the company’s mortgage investments.

The Beazer proposal is one of more than 25 filed by LIUNA as part of its response to the mortgage and homebuilding market crisis.

Beazer, which was trying to omit the measure, had sought a “no action” letter from the SEC. However, it failed to convince the commission that the proposed resolution should be excluded under SEC rules as a matter that deals with ordinary business or is irrelevant to the company’s operations.

LIUNA has submitted similar shareholder resolutions — which are not binding &#8212 to several additional corporations in the mortgage and housing industry in which it holds pension-fund investments, including Lehman Brothers, the Ryland Group, Washington Mutual, Bear Stearns, and Standard Pacific.

“The proposals seek disclosure of mortgage practices to help investors better understand existing and future mortgage securities risk,” the union stated in a press release. “The SEC’s Beazer decision sets an important precedent towards that end.”

Meanwhile, Beazer is under attack on other fronts. The company is the defendant in a new class-action lawsuit filed on behalf of participants and beneficiaries of its 401(k) plan. The complaint focuses on the plan’s investments in Beazer stock when participants allegedly were not provided timely, accurate, and complete information about the company.

In late June the company fired CFO Michael Ran for violating its ethics policy by trying to destroy documents covered by Beazer’s document-retention policy. In August, Beazer said it would delay the filing of its June quarterly report after an internal probe into its mortgage-origination business found that Ran may have violated generally accepted accounting principles. The matter involved incorrectly booking reserves and other accrued liabilities into prior accounting periods, and therefore the company recorded total that were in excess of the amounts allowed by GAAP.

Beazer also has been the subject of investigations by the FBI, the Department of Housing and Urban Development, and the SEC for possibly violating federal lending and securities laws.

The company announced in November that it had suspended its stock dividend, lopped off a quarter of its headcount, and would take a $230 million charge to abandon land-option contracts, recognize inventory impairments, and record impairments and land-option abandonments in joint ventures.