DOJ Responds to Criticism of Beazer Homes Investigation

The Department of Justice responded on Thursday night to a blistering critique by a government investigator of its investigation of Beazer Homes, the troubled Atlanta-based homebuilder that has come under fire for alleged mortgage fraud.

Beazer homes
Beazer homes

The tit-for-tat letters reveal a rare public split between federal agencies over how to proceed in the drawn-out investigations into Beazer Homes , whose troubles were first revealed in 2007 and became one of the early indicators of the potential rot in the nation’s housing market.

The dispute is significant because parts of the wide-ranging investigation into Beazer are still ongoing. As recently as August 24, the government indicted Michael Rand, the former Chief Accounting Officer for Beazer Homes on eleven criminal counts, including conspiracy, securities fraud, and obstruction.

In a letter to Attorney General Eric Holder first reported Wednesday by CNBC, the Inspector General of the Department of Housing and Urban Development blasted the Department of Justice for soft-pedaling its investigation of Beazer and allowing a 2009 settlement of up to $50 million that recouped too little money from the company. In the settlement, Beazer took responsibility for conspiracy and securities fraud.

But in his response Thursday night,H. Marshall Jarrett, the director of the Executive Office for United States Attorneys, painted the dispute as a technical disagreement between the government entities. “Reasonable minds often differ as to which remedies are most appropriate,” Jarrett wrote.

“Ultimately, a number of agencies were involved in the [Beazer Mortgage Corporation] settlement. There were serious disagreements among the agencies involved in the [Beazer Mortgage Corporation] settlements, and we regret any discord during the negotiations.”

Jarrett’s response was also obtained by CNBC.

Jarrett acknowledged a potential problem on one of the IG’s complaints about the investigation. The IG alleged that the Department of Justice essentially allowed Beazer Homes to investigate itself, relying too heavily on a report on the matter produced by Beazer’s law firm, Alston + Bird.

Beazer paid Alston + Bird between $35 and $50 million to produce that report, and the IG argued that the report was unduly influential in shaping the settlement agreement.

Of even more concern to the IG, however, was the appointment by the president of two former Alston + Bird partners to serve as US Attorneys for the Eastern and Western Districts of North Carolina. Critics said that raised questions about just how close the relationship was between Alston + Bird and the US Attorneys’ offices.

In his response, Jarrett wrote, “we acknowledge your concerns regarding a potential conflict of interest presented by the fact that the new United States Attorney for the WDNC, Ann Tompkins, was formerly employed by Beazer's law firm, Alston & Byrd [sic]. On July 19, 2010, United States Attorney Tompkins was formally recused from the matter at her request.”

The other US Attorney appointee has yet to be confirmed.

The involvement of Alston + Bird has attracted the attention of Senate investigators. Also on Thursday, Sen. Charles Grassley (R-Iowa) wrote a letter to the firm’s managing partnerRichard Hays demanding to know how much Alston + Bird billed on the Beazer case, which attorneys worked on it, and requesting copies of all of its work and documents produced in the investigation.

Beazer Homes’ troubles first came to light in a 2007 expose by the Charlotte Observer newspaper revealing that seventy-seven buyers in a Beazer development of 406 homes had gone into foreclosure, a rate well above the national average.

In a statement, Department of Justice spokesperson Jessica Smith said, "The Department of Justice investigation into fraudulent mortgage practices by Beazer Homes has been thorough and conducted in coordination with HUD-OIG, the FBI, the IRS, the United States Postal Inspection Service and North Carolina state agencies."

Neither Alston + Bird nor Beazer Homes has responded to requests for comment from CNBC.

Eamon Javers will report on this story today on "Street Signs" at 2pm ET.