The Beazer Homes Rumor

There were some rumors flying around today about the possibility that Beazer Homes was about to file bankruptcy, citing claims that they've run out of cash and credit. Of course the company denied theses claims, but I think the rumors might hold more water than the homebuilder would like you to believe. If you'll recall, the company fired their Chief Accounting Officer last month for attempting to destroy records. If you've got an employee attempting to destroy records, you have got a serious problem. That why I recommended selling or short selling Beazer Homes last June 25th. But some investors took that news and interpreted it as a buy. You don't believe me? If you look at this chart of the stock's price over the last three months, you can see that there are are upticks on June 27th, July 6th and July 13th. It should be noted that the last date listed was Friday the 13th. I guess that's the way those investors who bought will interpret it as. Since then, Beazer has fallen hard. And why shouldn't they? There has been some serious turmoil in the company, possible attempts to defraud investors. It brings me back to the question: why was their Chief Accounting Officer attempting to destroy records? I made over fifty percent on my short sell, did you?

And then there's the story over at CNBC: "Options Report: Speculators Burned Chasing Beazer Rumors"

As Beazer shares tumbled to a low of $8.10 from an early trading day high of $14.01, the out of the money August 10 puts rose 30-fold from early trades of 10-cents to an intraday high of over $3 as implied volatility surged briefly to the 300% level. Once the rumors were refuted, and the stock rebounded, the puts quickly lost more than half their value from the spike-high of the day.

Any savvy investor would have dumped Beazer as soon as news emerged that they were dumping their Chief Accountant. Any time a company dumps a high level executive of finance or accounting for impropriety, you know the company has trouble. I realize that there are some risks involved with selling a company short, but when the news is right, it eliminates that inherent risk of infinite loss. So for all those investors out there who were "burned" chasing rumors, you should have chased the facts when they emerged one month ago.