The SEC on July 1 charged Michael Rand, the former chief accounting officer of Atlanta-based homebuilder Beazer Homes, USA, for conducting a multi-year fraudulent earnings management scheme to meet analysts’ expectations, and for misleading auditors to conceal his activity.

The SEC alleges that Rand fraudulently decreased Beazer's reported net income by recording improper accounting reserves during certain periods between 2000 and 2005 in order to meet or exceed analysts' expectations for Beazer's diluted earnings per share and maximize yearly officer and senior employee bonuses. Rand began reversing these improper reserves beginning in the first quarter of fiscal year 2006 in order to offset Beazer's declining financial performance.

"Michael Rand orchestrated an old-fashioned 'cookie jar' earnings management scheme where he hid from view over $60 million in so-called reserves," said SEC Director of Enforcement Robert Khuzami,. "Then when Beazer's business declined, he fraudulently reversed those secret reserves and appeased financial analysts, enticed new investors, and most importantly earned himself an undeserved lucrative bonus."

The SEC also alleges that in fiscal year 2006 and the first two quarters of fiscal year 2007, Rand improperly recognized revenue from the sale and leaseback of certain model homes on Beazer's financial statements and used secret-side agreements in order to hide his misconduct from Beazer's outside auditors.

Cumulatively, Rand's actions caused Beazer to understate its income in SEC filings by approximately $63 million during fiscal years 2000 to 2005. In addition, Rand's fraudulent actions caused Beazer to overstate its income and understate its loss by a total of $47 million during fiscal 2006 and the first two quarters of fiscal 2007, according to the complaint.

The SEC's complaint, filed in U.S. District Court for the Northern District of Georgia, charges Rand with violations of the antifraud, reporting, books and records, and internal control provisions of the federal securities laws, and seeks a permanent injunction, disgorgement of Rand's ill-gotten gains plus prejudgment interest and a financial penalty. The SEC also seeks a court order barring Rand from acting as an officer or director of any public issuer.

A copy of the complaint can be found here.