A federal jury in Los Angeles on Wednesday found Bruce Karatz, the former CEO of KB Home, guilty of four felony counts associated with his backdating of stock options issued to him by the home building company.
The jury found the 64-year-old Karatz guilty of two counts of mail fraud, one count of lying to KB’s accountants, and a count of making false statements to the Securities & Exchange Commission, which had launched an earlier investigation of him.
The jury acquitted Karatz on 16 other counts, including securities fraud, but he still faces 80 years in prison. Prosecutors told the Associated Press that Karatz would be sentenced on Sept. 8. Karatz’s attorney, John Keker, said his client would appeal the verdict.
Karatz was one of the country’s highest-paid executives when he ran KB. He received $232 million in compensation from the builder for his last three years he was with the company (Karatz resigned in 2006). A good portion of that payout was in stock options. In 1998 alone, he received 450,000 options, or four times what he had been granted in the previous four years.
Karatz was indicted last year, and accused by federal prosecutors of illegally backdating an estimated $6.62 million in stock options he received from 1999 through 2005 to generate higher returns from them.
The jury convicted Karatz despite some high-profile character witnesses who came to his defense, including former Los Angeles Mayor Richard Riordan and Eli Broad, the philanthropist who founded Kaufman & Broad, the predecessor company of KB Home.
His conviction comes at a time when executive compensation has come under intense scrutiny by both the public and the government.
When he resigned four years ago, Karatz agreed to return an estimated $13 million to KB for mispriced options, and the home building company started using new measurement dates to re-price any remaining options he'd been granted. In 2008, Karatz had settled SEC charges of stock option backdating by agreeing to pay back $7 million.
John Caulfield is senior editor for BUILDER magazine.
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