A federal jury in Los Angeles found former KB Home Chief Executive Bruce Karatz guilty of two counts of mail fraud and two counts of making false statements. The jury acquitted Karatz on 16 other charges, including securities fraud and wire fraud.
The jury of nine men and three women found Karatz, 64, guilty of making false statements in a 2006 quarterly report and making false statement to accountants for his publicly-traded company. Federal prosecutors had charged Karatz with 20 felony charges of securities fraud, mail fraud, wire fraud and making false statements in securities filings.
Karatz is free on bond and faces up to 80 years in prison. However under federal sentencing guidelines that have yet to be established for the case, he would likely serve a fraction of that. He is scheduled to be sentenced on Sept. 8.
Defense attorney John Keker in a statement said that he was disappointed with the four guilty convictions, adding his client will continue to fight the case.
“We plan to keep fighting to vindicate Bruce Karatz,” Keker said. “There will be post trial motions and an appeal. We continue to believe that Bruce Karatz is innocent. We expect his ultimate vindication.”
Karatz in a separate statement said that the last several months have been a challenging time for him personally.
“I will continue to get strength from the support of my family, including my wife, children and grandchildren, good friends and former colleagues,” he said.
A spokesman for the federal prosecutors could not be reached for comment.
The jury began deliberations April 9 after a month-long trial during which the defense called former Los Angeles Mayor Richard Riordan and KB Home co-founder and billionaire philanthropist Eli Broad as character witnesses.
Prosecutors argued that Karatz, with help from Gary Ray, a former vice president of human resources, and others at KB Home, took part in backdating stock options to enrich himself and other top executives. Prosecutors further alleged that Karatz concealed the backdating practice from KB Home’s board, its compensation committee and shareholders.
Typically, companies that backdated stock option dated them not the day they were awarded but at a previous low, enhancing executives’ payout. The practice is legal if it is disclosed to shareholders and regulators, and if the company reports the expense.
During the trial, Ray testified for the prosecution, but defense attorney John Keker told jurors that Karatz never intended to deceive shareholders. He said during closing arguments that Ray – who originally had told investigators that Karatz had done nothing wrong – had changed his story after striking a plea deal that limited his own potential sentence.
It was the third time that executives of a California company had been accused of charges related to the backdating of stock options.
Irvine chipmaker Broadcom Corp. co-founders Henry Samueli and Henry Nicholas II and the company’s former chief financial officer, William Ruehle, faced felony charges before a federal judge in Orange County dismissed them in December. In the case, prosecutors were accused of intimidating witnesses and obtaining unjustified convictions.
A San Francisco federal jury convicted former Brocade Communications Systems Inc. Chief Executive Gregory Reyes in March of securities fraud and other charges related to stock options backdating. His conviction in an earlier trial was overturned on appeal.
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