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Bruce Karatz, the former chairman and CEO of KB Home, was indicted on 20 counts of fraud and making false statements to the Securities and Exchange Commission in connection with an investigation into the backdating of stock options at KB.
The federal prosecutor in Los Angeles claims that over a seven year period ending in 2006 Karatz and another senior executive went back and found the lowest priced days on which to award stock options rather than pricing them on the day the contracts actually should have been awarded. Karatz left the company in 2006 after accusations of backdating schemes began making headlines at KB and other firms.
In February 2007, the company recognized more than $36 million in additional expenses and a $70 million increase in liabilities from the options. KB’s former head of human resources pled guilty on Feb. 6 of this year to conspiring with Karatz to obstruct justice by filing a misleading report with the company’s audit committee to ward of an SEC investigation.
Karatz, 63, is expected to make his initial court appearance on March 26 in
federal court in Los Angeles. If convicted of all the charges, he faces a
maximum sentence of 415 years in federal prison. Karatz, who ran KB for two decades, was known as an innovative marketer, launching a line of homes with Martha Stewart, who has some experience with federal prison.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.