KB Home's former chief Bruce Karatz to pay $7-million settlement
He settles charges with the Securities and Exchange Commission, which accused him of taking part in a scheme to backdate stock options for himself and others at the Los Angeles-based home builder.
Former KB Home Chief Executive Bruce Karatz has agreed to pay more than $7 million to settle charges from the U.S. Securities and Exchange Commission that he took part in a scheme to backdate stock options for himself and others.
"Karatz improperly increased his compensation by millions of dollars without telling KB Home shareholders," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement.
Karatz, 62, was a three-decade veteran of the Los Angeles-based home builder and one of the nation's highest-paid executives when he left the Los Angeles company in 2006 under pressure from the SEC probe. In his last three years with KB Home he collected more than $232 million in compensation, much of which came from cashing in stock option grants.
Karatz could not immediately be reached for comment.
The SEC complaint filed today in federal court in Los Angeles -- and settled by Karatz -- alleges that Karatz used "hindsight" from at least 1999 through 2005 to pick advantageous grant dates for KB Home's annual stock option grant in order to enrich himself and other company officers and employees.
On many occasions, the grant dates coincided with dates of low monthly closing prices for the company's common stock, the SEC said. Without admitting or denying the allegations, Karatz agreed to pay more than $6.7 million in compensation and interest to KB Home and a $480,000 penalty to the U.S. Treasury.
He is also barred from serving as an officer or director of a public company for five years.
"Our complaint alleges that Karatz engaged in self-dealing over many years by granting himself in-the-money stock options without disclosing that practice," said Rosalind Tyson, director of the SEC's Los Angeles office. "Today's action demonstrates that corporate executives who mislead investors about the executive's compensation for their own personal benefit will be held accountable."
Backdating is legal as long as it is disclosed to shareholders and properly accounted for, but Karatz continued to backdate stock options even after the Sarbanes-Oxley Act of 2002 imposed stricter reporting requirements, the SEC said.
Because of the backdating scheme, KB Home filed periodic reports and proxy statements with the SEC that inaccurately stated that KB Home granted options at fair-market value on the date of the grant.
Karatz received backdated annual stock option awards amounting to 2.86 million shares of KB Home stock and profited more than $6 million from exercising many of these options, the SEC said.
Karatz also violated anti-fraud, proxy and financial reporting laws, according to the SEC. The complaint alleges that he falsified records and signed certifications required by the Sarbanes-Oxley Act that were false.
roger.vincent@latimes.com
