Home Builder's Former CEO to Pay More Than $7 Million for Stock Options Backdating
FOR IMMEDIATE RELEASE
2008-201
Washington, D.C., Sept. 15, 2008 — The Securities and Exchange Commission today charged the former chairman and CEO of Los Angeles-based home builder KB Home, Inc., for his participation in a multi-year scheme to backdate stock options to himself and other company officers and employees, depriving investors of accurate information about executive compensation at the company.
The SEC's complaint, filed in federal court in Los Angeles, alleges that Bruce E. Karatz used hindsight to pick advantageous grant dates for KB Home's annual stock option grants in order to enrich himself and others at KB Home. On many occasions, the grant dates coincided with dates of low monthly closing prices for the company's common stock. Without admitting or denying the allegations, Karatz has settled the SEC's charges by agreeing to pay more than $6.7 million in disgorgement and prejudgment interest and a $480,000 penalty, and to be barred from serving as an officer or director of a public company for five years.
"As alleged in our complaint, Karatz improperly increased his compensation by millions of dollars without telling KB Home shareholders," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Our action today confirms the Commission's commitment to addressing fraudulent stock option practices and ensuring full and fair disclosure of executive compensation."
Rosalind R. Tyson, Director of the SEC's Los Angeles Regional Office, added, "Our complaint alleges that Karatz engaged in self-dealing over many years by granting himself in-the-money stock options without disclosing that practice. Today's action demonstrates that corporate executives who mislead investors about the executive's compensation for their own personal benefit will be held accountable."
The SEC's complaint alleges that Karatz used hindsight for stock option grant dates from at least 1999 through 2005. He did so even after the Sarbanes-Oxley Act of 2002 imposed stricter reporting requirements. The complaint alleges that, because of the backdating scheme, KB Home filed periodic reports and proxy statements with the SEC that inaccurately stated that KB Home granted options at fair-market-value on the date of the grant. Karatz received backdated annual stock option awards amounting to 2,860,000 shares of KB Home stock and profited more than $6 million from exercising many of these options.
The SEC's complaint alleges that Karatz violated the anti-fraud, proxy, and financial reporting provisions of the federal securities laws. The complaint further alleges that Karatz violated provisions that prohibit falsification of records, and also signed certifications required by the Sarbanes-Oxley Act that were false. In addition, the complaint alleges that Karatz aided and abetted KB Home's violations of the financial reporting, recordkeeping and internal controls requirements. In agreeing to settle the SEC's charges, Karatz will be enjoined from violations of the anti-fraud, reporting and other provisions of the federal securities laws.
# # #
For more information, contact:
Michele Wein Layne
Associate Regional Director
SEC's Los Angeles Regional Office
(323) 965-3850
Finola Halloran Manvelian
Assistant Regional Director
SEC's Los Angeles Regional Office
(323) 965-3980
Molly White
Senior Trial Counsel
SEC's Los Angeles Regional Office
(323) 965-3250
http://www.sec.gov/news/press/2008/2008-201.htm
