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No jail time for the former CEO of KB Home who was convicted in April of lying about the backdating of stock options at the L.A.-based homebuilder. Besides house arrest, Karatz was sentenced to five years' probation, fined $1 million, and ordered to do 2,000 hours of community service. Prosecutors had wanted 6 1/2 years in prison, pointing out that home detention would be served in Karatz's 24-room Bel-Air mansion. From the LAT:
In court papers, prosecutors Paul Stern and Harvinder Anand said a probation sentence "suggests that there is a two-tiered system of justice, one for well-connected CEOs who can break the rules, secretly inflate their compensation and lie about it with virtual impunity, while ordinary citizens ... will face far more severe penal consequences."
Defense attorney John Keker argued that the crimes had not caused financial harm to the company or to shareholders, and that Karatz had already paid a heavy price by losing his job.
*From the WSJ:
The key issue in the case revolves around how much financial loss KB Home and its shareholders suffered. The Probation Office believes there was no loss. Prosecutors argue that the $11 million, representing gains Mr. Karatz made or hoped to make at KB Home's expense, qualifies him for a multiyear prison term. The dispute is part of a growing debate over whether the sentencing system for white-collar crimes has come to rely too heavily on calculations of financial losses to fraud victims. Under the sentencing guidelines, legal experts say, an executive of a large public company convicted of a crime like securities fraud could be sentenced to life imprisonment on a first offense.
Clearly, life imprisonment on a first offense makes little sense - and yet the prosecutors are correct in their claim of a two-tiered system of justice.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.