Bloomberg News is reporting that the L.A.-based homebuilder is under investigation by the U.S. Attorney's Office in Los Angeles over stock options backdating. No other details at this point - including how far along the investigation is - and as usual in these matters, no one is talking. The investigation likely centers on the role that former CEO Bruce Karatz had in the backdating of KB stock options. Basically, KB is now saying that Karatz, who was forced out last November, went back in time and selected dates when the stock price was especially low. That way, he maximized his profit when it came time to exercise those options. Last month, KB confirmed that the Securities and Exchange Commission had launched a formal investigation into the way the company granted stock options. Also last month, Karatz retained prominent white collar criminal attorney James Keker (he defended former Enron executive Andrew Fastow), which suggested to folks following the case that the federal inquiry was heating up. Here's what a Karatz spokesman told me a couple of days ago: "Bruce Karatz always acted appropriately and anyone objectively analyzing his leadership at KB Home can only come to one conclusion: shareholders, employees, the company and customers all did exceedingly well."
*Update: WSJ says the prosecutors appear interested in the actions of both Karatz and former human resources head Gary Ray, who KB has cited as being engaged in the options backdating. A lawyer for Ray said he's trying to persuade the prosecutor that "Gary Ray did not engage in any wrongdoing and certainly no conscious wrongdoing."