Friday, June 29, 2007

Executive Fired for Trying to Destroy Documents During an Internal Investigation

With investigations of corporations for criminal conduct a common feature of the landscape these days, any news about an attempt to destroy corporate records is sure to get the attention of prosecutors.  That conduct is particularly problematic when the it is the company's chief accounting officer. Homebuilder Beazer Homes USA, Inc. is being investigated by the FBI and HUD over its mortgage lending practices, and has commenced an internal investigation.  The company disclosed that it recently learned its chief accounting officer tried to destroy documents, and it responded swiftly by terminating him for cause.  In an 8-K (here), Beazer stated that he

has been terminated for cause, under the terms of his employment agreement, due to violations of the Company’s ethics policy stemming from attempts to destroy documents in violation of the Company’s document retention policy. The action was taken by the Board of Directors and management following a briefing by the independent legal counsel retained by the Audit Committee of the Board of Directors. As previously disclosed, the Audit Committee, with the assistance of independent legal counsel, is conducting an internal investigation of the Company’s mortgage origination business and related matters and recently became aware of [the chief accounting officer]’s actions during that investigation. As a result, [his] employment agreement dated as of September 1, 2004 as amended effective as of February 3, 2006, has been terminated.

Prosecutors will be especially eager to learn the details of the document destruction to see if it constitutes obstruction of justice.  The Sarbanes-Oxley Act included provisions expanding the scope of the obstruction of justice statutes, making it easier to prove such cases.  Given the person's expertise in accounting, it's unlikely that an ignorance defense would get much traction. (ph)

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