Some nuggets on KB inquiry

In its 10K filing on Tuesday, L.A.-based KB Home provides a little more detail on the internal investigation into former CEO Bruce Karatz's involvement in selecting the grant dates for stock options. Basically, the company found evidence that Karatz used "hindsight" in securing favorable exercise prices for seven of eight annual stock option grants since 1998. "Hindsight" apparently means backdating - in other words, Karatz looked for low points in KB's stock price and used those as the grant dates. That would provide a greater profit for the holders of those options. "Grants in 1999, 2000 and 2001 were made at the lowest closing stock price during the grant month," the filing states. There was also evidence of backdating in other years. Backdating is not illegal, but the company must report that it's taken place, which Karatz apparently failed to do - and which now is resulting in KB having to restate its earnings.

KB also said in the filing that involvement and knowledge of the "hindsight" or backdating practices was limited to Karatz and Gary Ray, the former head of human resources who was fired last November. The company says it began its investigation last July and was conducted by a subcommittee of outside directors, along with independent counsel and forensic accountants. Last month, KB said that the SEC was investigating its stock option practices, though there's no telling where that will lead. The feds are sending out mixed signals on how aggressively they intend to pursue these backdating cases. There also are several shareholder suits that have started making their way through the courts (state and federal). Anyway, here's the link to KB's filing.