U.S. District Judge Otis D. Wright II sentenced Karatz to five years of probation, including eight months of house arrest. He also said that Karatz would be required to pay a $1 million fine and complete 2,000 hours of community service.
The sentence is significantly less than the maximum penalty, which could have sent Karatz to prison for up to 80 years. Karatz was found guilty of four felonies by the jury: two counts of mail fraud, one count of lying to KB Home accountants, and one count of making false statements to the Securities and Exchange Commission (SEC). The jury found him innocent of 16 other charges, including securities fraud.
Prosecutors had recommended sending Karatz to prison for six-and-a-half years, arguing that a lighter sentence would suggest Karatz was receiving special treatment not available to less affluent defendants. According to reports in the New York Times, Judge Otis forcefully rejected their proposal, which he said was “mean-spirited and beneath this office.”
Karatz worked for KB Home for 34 years. He resigned in 2006 after KB’s board determined he and other top executives had timed the granting of stock options to essentially raise Karatz’s compensation, which was partially based on stock options. He was one of the industry’s highest paid executives, receiving total compensation of $135.53 million in 2006, according to Forbes.
Karatz settled a related regulatory stock-option case with SEC in 2008, paying $7 million and neither admitting or denying the charges.
Alison Rice is senior editor, online, at BUILDER magazine.
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