KB Home announced late Sunday that Chairman and Chief Executive Bruce Karatz is retiring after an internal investigation uncovered errors in the company's accounting of stock option grants.
The company said that an internal review found the Los Angeles-based homebuilder used incorrect measurement dates for financial reporting purposes for stock option grants between the years of 1998 to 2005 leading to a non-cash compensation expense of around $50 million, the company estimates. KB also said it is determining whether to restate previously filed financial statements.
Karatz's retirement is effective immediately, the company said, and he will also have to return approximately $13 million to the company after accounting for the new measurement dates. Jeffrey Mezger, KB's executive vice president and chief operating officer, will replace Karatz.
The company also fired Gary Ray, head of human resources, and announced the resignation of Richard Hirst, who served as executive vice president and chief legal officer.
This news comes only days after the company said it would delay its third quarter earnings because of the review. KB released preliminary third quarter results last week and saw a 32-percent dip in net income to $155.3 million ($1.93 per share), compared to $227.5 million ($2.55) from the same period a year earlier.
Karatz was one of the highest-paid executives last year, making $156 million, mostly from exercising options, reports said.
More than 170 companies across the nation have been involved or mentioned in a stock options backdating investigation. More than six companies are here in the L.A.-area, including Hansen Natural Corp., THQ Inc., Cheesecake Factory Inc., Vitesse Semiconductor Corp. and Activision Inc.
Shares in KB were up $1.29 to $45.11 in early trading Monday.
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