Former KB Home executive Gary Ray appears to be the government's biggest chip in its case against former CEO Bruce Karatz - except that Karatz's defense attorney, John Keker, roughed him up today during five hours of cross-examination. On Wednesday, Ray implicated Karatz in a scheme to backdate stock options, but today he admitted initially lying to prosecutors. From the LAT:

The lawyer asked why Ray initially said that numerous employees in the company knew he and Karatz were backdating options, only to change his story later. "The concept that it was an open, transparent thing was a lie," Ray said. Keker asked why Ray had insisted during initial meetings with authorities there was nothing improper about the way the option dates were chosen. "I was not prepared to live up to what I had done wrong," Ray said.

Ray pleaded guilty last year and in return promised to testify against Karatz. If all this turns out to be a he said/he said case, the prosecution might be in trouble.