Beazer Homes Case (Q 5-7)

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As we know from reading the case, and from the legal case brought against Mr. Rand and Beazer Homes by the SEC, Mr. Rand was alleged to have posted fraudulent entries in order to make the financial statements appear to be better than they actually were for the given period of time. Based on the evidence presented in the case, and the accompanying exhibits, it's easy to make the statement that the investors were harmed as a result of Mr. Rand's fraudulent entries. Investors were lead to believe that the company financials were healthier than they actually were, as evidenced by the changes noted when the financial statements had to be restated. As a result of doing this, investors who were under the impression of a healthier position, continued to invest in an organization that was essentially doing nothing more than stealing their money; money which could have been invested into a different enterprise rather than padding the pockets of executives that didn't earn it. As a result of having to restate financial statements, the per share price of Beazer Homes dropped from the $35/share price level in may, to approximately $11/share by the end of July. This is a significant loss in wealth for investors. In addition to the allegations against Mr. Rand for possible accounting fraud, allegations were also brought against Beazer Homes for mortgage fraud. To address the question as to which is a more serious offense, it would be our opinion that both would carry an equal weight of seriousness. On the one hand, investors were misled, as noted above, and this led to a significant loss of wealth for many, especially those individuals and/or institutions that may have held a large position. On the other hand, to address the issue of mortgage fraud, new homeowners were oftentimes cheated out of money that they paid to Beazer Homes. A example of this is when Beazer Homes would require purchasers to pay a fee for "interest discount points" at closing. Then Beazer Homes would keep...
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