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Former KB Home Chief Indicted

Posted by: Chris Palmeri on March 5, 2009


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.

Reader Comments

Fed Up

March 5, 2009 7:55 PM

I have a hunch that a lot of fraud is going on in the housing and lending industries, and more will come to light as the economic mess these insiders created unravels. It's sickening that these same people lobby in Washington for a bailout.


March 5, 2009 8:47 PM

Karatz was married to Sandra Lee, of Food Network SemiHomemade fame, now dating Andrew Cuomo in NY
where she lives and works for Food Network! Bruce can't stay away from domestic divas, apparently. Hope he meets one in prison!

keen observer

March 5, 2009 11:47 PM

"a maximum sentence of 415 years in federal prison..." smells of bogus to the potshot comment on "Martha Stewart, who has some experience with federal prison," she was railroaded on trumped-up charges that were just as bogus as the big-time trumped-up charge that was thrown out at trial. No doubt the servile mainstream media, like BusinessWeek, will be shilling for the prosecution in the Karatz case.


March 6, 2009 12:19 AM

A corrupt corporate executive? Say it ain't so!


March 6, 2009 10:08 AM

OXY's Ray Irani chaired KB Home executive pay committee

"• Mr. Irani chaired the KB Home executive pay committee when stock options were improperly dated. Mr. Irani later received a 19%-opposition vote at KB Home and quit the KB Board after 15 years – no reason given."

This text was in an Occidental Petroleum (OXY) shareholder proposal for a shareholder right to call a special meeting published in the OXY 2008 annual meeting proxy. The proposal received a 66%-vote.

Reference unrelated to the shareholder proposal:
Occidental CEO's 2008 options haul: $184.4M
Friday February 27, 2009 6:17 pm ET
By Joshua Freed, AP Business Writer

keen observer

March 6, 2009 12:16 PM

where is my previous post - no respect for the First Amendment? BusinessWeek censorship?


March 8, 2009 3:28 AM

i would hope a shareholder's lawsuit would be brought against karatz for a;\ll various damages and send him and co-conspirators to jail "broke". and put their "poor families" out on the street. "all the thieves men...." madoff and the rest of wall st crooks. or do we want this repeated before another decade or two ? they destroy families, communities, etc. i personally would visit old biblical penalties upon their heads and even enslave their offspring, oh how cruel ! what a bunch of fools we all are !

DFW Prelaw

March 12, 2009 2:32 AM

You'd think Karatz would have known better. I say this because of having a Doctorate of Jurisprudence Degree as well as being the companies attorney way before he became Chief Executive Officer. Lots of embelishments have taken place within both the home building and mortgage industries. Furthermore, lots of homebuilders besides KB have questionable standards when it comes to ethical standards. It seems like the days of playing "dirty pool" have caught up to them.


March 13, 2009 6:03 PM

KB Homes might be in even more trouble soon.

It seems as though it may have conspired with Countrywide’s appraisal subsidiary, Landsafe, to artificially inflate home prices—leading to unfair home purchase prices and inappropriate mortgages for KB Home owners.

Haven’t homeowners suffered enough? Check out this blog post by the lawyer heading up the investigation

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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.

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