LOS ANGELES – LOS ANGELES (AP) — The former head of construction giant KB Home was convicted Wednesday of four felony counts in a stock option backdating scam.
A federal jury in Los Angeles found Bruce Karatz guilty of two counts of mail fraud, one count of lying to company accountants and one count of making false statements in reports to the Securities and Exchange Commission.
Karatz was acquitted on 16 other counts. The 64-year-old former CEO showed no emotion as the verdicts were read.
It was the second time that top officials of high-flying California companies had been accused of criminally manipulating stock options. Last year, a federal judge in Orange County threw out similar cases against Broadcom Corp. co-founders Henry Samueli and Henry T. Nicholas III and Chief Financial Officer William Ruehle, citing prosecutorial misconduct.
U.S. District Judge Otis Wright refused to allow Karatz's attorneys to pursue similar misconduct claims, saying he found no evidence of wrongdoing.
Prosecutors claimed Karatz illegally backdated his stock options between 1998 and 2005 while he was chairman and chief executive of KB Home.
A stock option allows an employee to purchase a company's stock at a preset price at a future date. Karatz retroactively tied the exercise price of his options to dates when the stock was selling for a low price, which increased his profit when he sold the shares.
The maneuver is legal if it is properly accounted for and disclosed to investors. Otherwise, it can allow companies to overstate profits and underpay taxes.
At trial, former human resources head Gary Ray said his ex-boss helped engineer and benefited from a shift in company policy for awarding stock options, then tried to conceal his moves from investors.
Karatz's lawyers argued that he didn't knowingly break any laws and questioned Ray's credibility, noting that he pleaded guilty last year to conspiracy to obstruct justice and agreed to testify in return for leniency.
Karatz, Ray and another KB Home executive were forced out in 2006 after the Los Angeles-based homebuilder discovered stock options had been favorably dated between 1998 and 2005.
Karatz agreed to pay some $7 million in September to settle civil charges of backdating stock options but did not admit any wrongdoing.
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