Legal News

Former KB Home CEO Karatz Indicted on Backdating Charges

By Ashby Jones

The stock-option backdating scandal, which broke nearly three years ago with the publication of this WSJ article, has yielded scores of relatively small derivative lawsuits and settlements. That said, it’s also led to some huge civil settlements — former UnitedHealth CEO William McGuire’s agreeing to repay $468 million to settle an SEC suit comes to mind — as well as criminal charges against a handful of executives.

The latest to land a criminal charge: KB Home’s Bruce Karatz (pictured). He was indicted on Thursday by a federal grand jury on charges of fraud and false representation in connection with the alleged manipulation of stock options. Click here for the LAT story.

Karatz, 63, served as chairman and chief executive of Los Angeles-based KB Home from 1986 to 2006, when he resigned under fire. Over a three-year period ending in 2005, Karatz garnered more than $232 million in compensation. The indictment says Karatz orchestrated the backdating of stock options from 1999 to 2006, which made his stock options worth $1.63 to $4.56 more per share — a fact that should have been disclosed to other shareholders, it said.

“This investigation painted a picture of avarice and dishonesty at its core,” said Salvador Hernandez, who heads the FBI office in Los Angeles.

Karatz’s lawyer, John Keker, in characteristic style, came out swinging. “We are disappointed that during this economic collapse the government chooses to waste its resources on backdated options, an issue that has long ago been fixed at KB Home and generally in the corporate world.”

Full post as published by Law Blog - WSJ.com on March 06, 2009 (boomark / email).