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Eli Broad is latest character witness for ex-KB Home chief Bruce Karatz

The billionaire philanthropist, who co-founded the home-building firm, follows former L.A. Mayor Richard Riordan in vouching for Karatz at his stock-options backdating trial.

April 03, 2010|By Stuart Pfeifer

The celebrity endorsements of former KB Home Chief Executive Bruce Karatz resumed Friday morning when billionaire philanthropist Eli Broad took the witness stand to defend the character of the man federal prosecutors say made millions of dollars in illegal profits by secretly backdating stock options.

Broad, who co-founded the company that became KB Home in 1957 and later operated SunAmerica insurance company, told jurors that he had known Karatz for 38 years and considered him to be a man of impeccable integrity.

"I know of no instance in those 38 years where he's done anything unlawful or improper," Broad said under questioning from defense attorney John Keker.

Broad left Kaufman & Broad, as the company was then known, in 1986 and handed control to Karatz. Under Karatz's leadership, profits at the company soared.

"He did an excellent job. It grew a lot faster and better than when I was CEO," Broad said.

Last month, Forbes magazine estimated Broad's net worth at $5.7 billion. He was instrumental in fundraising for Walt Disney Concert Hall, was founding chairman of the Museum of Contemporary Art and drove efforts to bring the 2000 Democratic National Convention to Los Angeles.

During his brief testimony, Broad said he and Karatz were longtime friends who met regularly for dinner. He acknowledged under cross-examination by Assistant U.S. Atty. Alexander A. Bustamante that he had not been involved with KB Home in 15 years.

Prosecutors contend that Karatz directed company officials to backdate stock option grants to make them more valuable to himself and other executives and then failed to disclose the backdating on proxy statements and annual filings with the Securities and Exchange Commission.

Karatz faces 20 felony charges of securities fraud, mail fraud, wire fraud and making false statements in securities filings.

Defense lawyer Keker told jurors in his opening statement that Karatz and other KB executives did nothing improper and never intended to deceive shareholders.

Two former company officials testified as defense witnesses that company executives were aware of how options were granted and that accounting and legal staff approved all filings. The defense completed its case Friday. The trial is scheduled to resume Tuesday.

Before Broad took the witness stand, U.S. District Court Judge Otis D. Wright II said he was concerned to learn that a juror had a brief conversation with former Los Angeles Mayor Richard J. Riordan after he testified Thursday as a character witness for Karatz. The Times reported Friday that the juror approached Riordan on the front steps of the courthouse, shook his hand and said, "I'd like to thank you for your years of service to the city."

Wright took a moment to remind jurors to steer clear of witnesses in the case.

"Try to restrain yourselves," the judge said. "You don't want to be seen having contact with one side's witnesses. We don't want to be reading any more articles in the L.A. Times."

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