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, KBís 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 hereís a snippet:
Karatzís 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 Karatzís 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, Karatzís former personal trainer, says it wouldnít be unusual for Karatz to call on a Friday morning and say, ďWhat are you doing on Sunday? Meet me at the airport. Weíre going to Monterey to play some golf.Ē