Rand v. United States

MICHAEL T. RAND, Petitioner, v. UNITED STATES OF AMERICA, Respondent.

3:17-cv-687-RJC

3:10-cr-182-RJC-DSC-1

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION

March 6, 2020

ORDER

THIS MATTER is before the Court on Petitioner's First Amended Motion to Vacate, Set Aside or Correct Sentence under 28 U.S.C. § 2255 filed by counsel.¹ (Doc. No. 10); see (Doc. No. 14) (Memorandum in Support); (Doc. No. 30) (Amended Statement of Disputed Fact). The Government has filed a Response opposing relief, (Doc. No. 21), and Petitioner has filed a Reply, (Doc. No. 27). The parties have filed evidence in support of their respective positions.

I. BACKGROUND²

Petitioner, a certified public accountant, was indicted in the underlying criminal case for accounting fraud based on earnings mismanagement and improper accounting practices while acting as the Chief Accounting Officer ("CAO") at Beazer Homes USA, Inc. ("Beazer"), a home-building company, from 2000 to 2007. He was also charged with obstructing an investigation into Beazer's mortgage origination practices. The charges were: Count (1), conspiracy to commit offenses against the United States; Count (2), mail/wire fraud conspiracy; Count (3), securities fraud; Counts (4)-(5) false statements to a bank; Count (6), obstruction of justice; Count (7), destruction of records; Counts (8)-(9), misleading conduct to hinder an investigation; Count (10), witness tampering; and Count (11), obstruction of an official proceeding. (3:10-cr-182, Doc. No. 3).

The factual background of the case, as summarized by the Fourth Circuit Court of Appeals, is as follows:

In 2010, the government charged Michael Rand with accounting fraud based on his work at Beazer Homes USA, Inc. ("Beazer"), a home-building company, from 2000 to 2007 and with obstructing an investigation into Beazer's mortgage origination practices. Rand, a certified public accountant, was Beazer's controller and later its chief accounting officer from 1999 to 2007. He reported to Beazer's CEO and CFO.

The government's accounting charges concerned earnings management: it believed that Rand attempted to adjust Beazer's reported earnings over time so that Beazer would hit consensus—that is, the quarterly earnings amount that Wall Street predicted. This practice involved "cookie jar" accounting with respect to Beazer's reserve accounts, where funds are set aside for future expenditures or revenue. It is generally accepted that the amount put into a reserve account is what the company reasonably anticipates needing to meet the expected expense. It is not appropriate to increase or decrease funds in reserve accounts to understate or inflate its actual earnings. Instead, if a company determines that it does not need the reserve funds, those funds "are to be taken back as income as soon as [the company] know[s] that they are no longer required." J.A. 1260.

The government attempted to prove that Rand manipulated the accounting to reduce earnings when Beazer was beating consensus. E.g., J.A. 3720 ("If you have more than 100k extra, hide it."); id. at 3722 ("To achieve the 'goal' $ for this year, let's squirrel $ away in places which will turn around in the next year; not be so 'open.' "); id. at 1982-83 ("We may have $5 million to squirrel away, so if you have ant [sic] ideas, let me know. Joavan's cookie jar has no more room."). This practice resulted in a misrepresentation of Beazer's earnings in many quarters, including each quarter in fiscal year 2006.

The government also alleged that Rand improperly accounted for transactions involving model homes Beazer sold to and leased back from GMAC, an investment company. In 2005, Beazer sought to enter into model-home sale-leaseback agreements. Under these agreements, Beazer would sell model homes to investors and rent the homes back from the investors until the subdivision was complete and the model home could be sold to a third party.

Generally, a seller cannot count the transaction as a sale and recognize revenue until "all risks and rewards of ownership" are transferred to the buyer. J.A. 2056. A seller may not have any "continuing involvement" with the property for it to be counted as a sale. Id. A transaction is not counted as a sale if the seller retains the ability to share in the appreciation of the home after it is sold.

Deloitte & Touche ("Deloitte") served as Beazer's auditors. Rand consulted with Deloitte senior manager, Corbin Adams, about a potential sale-leaseback arrangement with GMAC. In December 2005, Rand sent Adams a draft Master Sale and Rental Agreement ("MSRA") that did not include any provision for Beazer to benefit from later appreciation in the value of the homes. He later confirmed that Beazer would not be able to "participate in appreciation of [the] leased assets." Id. at 2074. Meanwhile, Rand was assuring Beazer's employees that Beazer would share in the upside—the future profits from appreciation in value before GMAC eventually sold them. The same day Beazer entered into the MSRA, a Property Management Agreement ("PMA") between GMAC entities was executed, providing that Beazer would share in the upside of any consumer transactions. In the next nine months, Beazer entered into two more MSRAs, followed by PMAs, agreeing that Beazer would share in appreciation when the model homes sold. Beazer received $117 million for the model homes it sold and reported $24.8 million in total profit.

Finally, Rand was charged with obstruction of justice stemming from his allegedly deleting emails following a grand jury subpoena. In March 2007, the FBI began investigating Beazer for mortgage fraud. On March 23, 2007, a federal grand jury issued a subpoena requiring Beazer to retain all documents, including emails, related to mortgages or home sales.

On March 28, Beazer initiated an "email dumpster," which would save all deleted emails from permanent deletion. Beginning March 29, all deleted emails were caught in this dumpster without the employee's knowledge. At 2:58 p.m. on March 30, Beazer's CEO Ian McCarthy sent a memorandum to Rand and other senior management notifying them that Beazer was providing documents in response to the subpoena and would be providing an updated document-retention memorandum. Around 4:20 p.m., Deborah Danzig, an in-house attorney, sent an email to all employees in the corporate office, including Rand, with this memorandum, instructing them not to destroy any records. Danzig also testified that she told Rand directly that "he was required to keep everything and destroy nothing." Id. at 975.

Between 5:55 p.m. on March 29 and 5:45 p.m. on March 30, 2007, Rand deleted nearly 6,000 emails dating back to 1999. Some of the emails were responsive to the grand jury's subpoena and contained evidence of mortgage fraud. Other emails that Rand deleted were related to the cookie-jar accounting scheme. Others still appeared irrelevant to either set of charges.

Shortly after the subpoena was issued, Beazer's audit committee hired the law firm Alston & Bird to conduct an internal investigation. Mike Brown, a partner at Alston & Bird, interviewed Rand as part of that investigation. On June 15, 2007, during their first interview, Rand told Brown that he had not destroyed or deleted any documents or emails since the investigation had begun. On June 26, 2007, Brown met with Rand again. Brown had learned that the email dumpster had recovered thousands of emails that Rand had attempted to delete. At that meeting, Rand initially provided that he did not delete any emails, but he eventually admitted that he might have deleted "a couple of emails" to reduce the size of his mailbox. Id. at 1072. On further questioning, Rand said that he deleted "a series of emails" from one particular coworker on March 30. Id. at 1073.

Beginning July 2008, the FBI conducted between six and eight interviews with Rand as part of a proffer. During these interviews, conducted by FBI Agent Douglas Curran and others, Rand admitted to manipulating Beazer's earnings, admitted that that was illegal, and expressed remorse. Curran testified that he also asked Rand about the GMAC transaction, and Rand admitted that there was a "verbal side agreement to share in the appreciation of the model homes when they were ultimately sold." Id. at 2780.

Curran also asked Rand about the email deletions. Curran testified that Rand admitted that "he was certain that by March 27th he was for sure at the latest aware that there was a federal investigation in Charlotte." Id. at 2784. Rand also admitted that he had spoken with Danzig and understood that the document-retention memorandum applied to him, when he "went back to his office and started performing mass deletions of emails." Id. at 2784-85. Explaining that he was "essentially in a state of panic," he deleted the emails because "[t]here were a lot of stressful events going on in his life at that time, and on top of that he was aware of the federal grand jury investigation that was focused in Charlotte and he did not want to be associated with that investigation in any way." Id. at 2785. Rand admitted that he "understood that he was deleting evidence pertinent to the investigation" and "[h]e knew it was wrong." Id. at 2786.

Rand went to trial twice. Before the first trial, Rand sought leave to subpoena computer forensic evidence of Rand's email deletions and records from Beazer's accounting system to show Rand's accounting was reasonable and justified and to contextualize and refute the prosecution's accounting records. The district court denied both requests.

In the first trial, the government presented evidence of emails relevant to the grand jury's investigation into Beazer's mortgage division and that Rand deleted from his Beazer email account. Aaron Philipp, a computer forensics expert, testified that based on Beazer's backup tapes, 3,272 emails were deleted between March 23 and 28, while another 5,936 were deleted on March 30, after the email

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