*Karatz indictment

The former CEO of L.A.-based KB Home is charged with conspiring to defraud the homebuilder and shareholders through a stock option backdating scheme. Karatz, who stepped down in late 2006 after the backdating activity was revealed, also faces several counts of mail, wire and securities fraud and making false statements in reports filed with securities regulators. Technically, Karatz faces as many as 415 years in prison if convicted on all counts. You might recall that he agreed to pay more than $7 million to settle SEC claims that he fraudulently backdated stock options. At the time of the settlement, his high-powered attorney, John Keker, said "Bruce is pleased to be able to put this matter behind him and is looking forward to focusing on the next chapter in his life."

Karatz had been one of the nation's highest paid executives, collecting more than $232 million in compensation during his last three years as CEO. Backdating happens when executives issue stock options for themselves and then go back and re-date them to an earlier point when the stock price was low. That way, they can purchase shares for that low price. Backdating is not illegal, but you have to disclose it to shareholders, which Karatz did not do. Last month, Gary A. Ray, KB’s former head of human resources, pleaded guilty to conspiring with Karatz to obstruct an SEC investigation into backdating. (LAT, Bloomberg)

I profiled Karatz in the May, 2007 issue of Los Angeles magazine. It's no longer available online, but here’s a snippet:

Karatz’s extravagant lifestyle was fueled by a generous employment agreement with KB. To be fair, a lot of his freebies are standard issue in the CEO world: tickets to sporting events, meals and lodging, financial planning and tax preparation services, club membership fees, and an automobile and gasoline allowance. But sometimes the lines between Karatz’s personal and business life blurred, especially in the use of company-owned aircraft for personal outings. Last year those expenses totaled $558,009, more than double the figure from a year earlier (General Electric chairman Jeffrey Immelt expensed $219,533 for use of the GE plane). David Gilbreath, Karatz’s former personal trainer, says it wouldn’t be unusual for Karatz to call on a Friday morning and say, “What are you doing on Sunday? Meet me at the airport. We’re going to Monterey to play some golf.”

*Updated post


More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent stories:
Letter from Down Under: Welcome to the Homogenocene
One last Florida photo
Signs of Saturday: No refund
'I Am Woman,' hear them roar
Bobcat crossing
Previous story: *Terrible day for stocks

Next story: SEC sues for fraud

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner


Advertisement
Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook