KB Home Inc. said Monday afternoon in a regulatory filing that a lawsuit was filed against the company alleging violations of the Employee Retirement Income Security Act related to the company's illegal backdating of stock options.


The suit was filed last month in California's Central District and alleges the company breached its promise to participants in the company's 401(k) retirement program by issuing illegally backdated option grants.


Last summer the Los Angeles-based home builder said it had begun a review of past stock-option grants to former Chief Executive Bruce Karatz and other executives. The review ultimately found that Karatz backdated his own option grants to increase his pay. Karatz agreed to leave the company late last year and forfeit about $13 million in gains from the backdating.


Also leaving the company due to findings in the investigation were the company's chief legal officer, Richard Hirst, as well as the company's head of human resources, Gary Ray.


After completing its internal investigation earlier this year, KB said it understated stock-based compensation expenses by more than $36 million and as a result would be forced to reduce net income by $41million between 1999 and 2005.


Shares in KB Home were down 13 cents to $42.20 in morning trading Tuesday on the New York Stock Exchange.

For reprint and licensing requests for this article, CLICK HERE.