Just when I thought the government couldn’t give lighter hand slaps for fraud, corruption, and general sleaze, I read this story in the paper today about Beazer Homes USA and their fraudulent practices.
Basically a few lower level employees got fired, but the CEO is staying in his job and isn’t going to jail, and the board remains unchanged, oh – and the CEO got a big bonus even though the company lost hundreds of millions last year. If the government really wants executives and boards to rethink breaking the law, or that breaking the law will have any result other than an increase in salary and bonus, then this is a huge and startling step in the wrong direction.
As the article describes, in 2007 it was reported by a North Carolina newspaper that “fraud was committed in numerous ways.”
Problem #1 – a newspaper discovered the fraud, not a regulatory body or a consumer.
What are the regulators doing? Is there no oversight at all?
So now Beazer has agreed to pay $15 million as part of their penalty for their bad behavior, largely selling homes to people who couldn’t afford them. Hard to know from the article how much fraud was involved, but with over $400 million in losses at Beazer, I am guessing $15 million doesn’t scratch the surface.
But it gets a lot worse.
Problem #2 – the company knows the names of the people it defrauded but they don’t have to make any effort to notify or help them.
“If the company knows a particular customer was defrauded, and by how much, it is under no obligation to point that out to the customer.”
This is where it starts to get totally insane. If Beazer and the government know the specific names of people who were defrauded, and the amount, AND there is now $15 million to pay them back, they aren’t required to notify them (let alone apologize)? It’s up to the homeowners to do the research and figure this out? So the company that is in the business of making and selling homes (the expert), expects their customer, probably having little or no expertise in mortgages, let alone fraud detection, to figure all of this out and file a claim? Well, at least they can hire a smart lawyer to help them sort this out, right?
Problem #3 – the victims of the crimes can’t hire lawyers to help them sort through this.
Well, that’s not the exact wording, but when the article points out that “no money can go to lawyers who help these homeowners” – if the lawyers can’t get paid to help the homeowners, then I think the odds are low that they will be able to hire a good lawyer to help.
Problem #4 – the boss got a big bonus, got to keep his job, and so did the board.
“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.”
The CEO claimed to know nothing of the fraud, and presumably that is at least part of the reason he gets to keep his job and not get arrested, but that’s crazy. And what was the board doing all this time?
Given the magnitude of the real estate and banking mess, don’t we need harsher penalties that motivate executives and boards to pay attention to what is causing profits and losses and take accountability for them, while at the same time not block the consumer from knowing when they have been wronged?
I don’t know why we think any of this will get better anytime soon if we don’t rethink enforcement.
-Ric
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