A federal grand jury on Thursday indicted former KB Homes Chief Executive Bruce Karatz on charges that he attempted to defraud the L.A. home builder's shareholders by awarding himself and other executives stock options that were illegally backdated to increase their value.
The 20-count indictment alleges that Karatz, who also was the company's chairman until he stepped down in November 2006, authorized adjusting the date of the options over a seven-year period to coincide with days the company's stock price was low.
The indictment also accuses Karatz, 63, of concealing this practice from the board of directors and compensation committee as well as from shareholders. Gary A. Ray, a former senior vice president and head of human relations, earlier pleaded guilty to conspiring with Karatz to obstruct justice.
When KB Home launched an internal investigation into the stock-option grants in May 2006, Karatz allegedly lied about his role in the scheme. That resulted in improper erroneous filings the company made to the Securities and Exchange Commission, for which the company later was sanctioned.
Karatz in September agreed to pay $7.2 million to settle the SEC investigation. The regulator alleged Karatz personally profited by more than $6 million from exercising the backdated options. Karatz did not admit to or deny the charges at the time, but agreed to be barred from serving as an officer or director of a public company for five years.
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