Is KB Home out of the woods?

Not likely. That internal investigation into backdated stock options by the L.A.-based homebuilder must have turned up some nasty stuff for long-time Chairman and CEO Bruce Karatz to be forced out. KB wouldn't provide details, other than that Karatz selected the dates for the backdated options. (Option grants give the holder the right to buy stock at a set price within a certain time period, typically based on the stock price when the option was granted). The implication is that Karatz went back weeks or months to find the stock trading at a low level - and then used that as the option price. When the options are later exercised, there's greater profit. KB said the internal investigation did not conclude there was intentional wrongdoing. From the WSJ:

KB Home appears to have concentrated its options grants at the top. Mr. Karatz received 500,000 options in 2000, which was 30.9% of all the awards to employees. They were dated at a monthly low. Mr. Karatz has cashed all of those options out, for a total profit of about $54 million. The $13 million he will forfeit is part of an agreement reached to refund the excess profit from backdating to the company, KB Home said. Mr. Karatz will repay the company to cover extra profit on already-cashed-out options, and his remaining outstanding options will be repriced.

The feds are still looking into backdating at KB, along with 130 some-odd companies. But so far, only five executives have been charged with criminal wrongdoing. Developing a criminal case will be a challenge, especially since some of the backdating acitivties aren't exactly illegal (even though they involve cheating). KB also has a shareholder lawsuit to deal with and it has yet to report its most recent quarterly earnings because of complications involving the options probe. In the end, shareholders might be just as concerned over the lagging homebuilding market as they are with corruption within senior management. NYT LAT