A federal jury on Wednesday found the former chief executive officer of KB Home guilty of depriving shareholders of his honest services and lying about the backdating to outside auditors and the U.S. Securities and Exchange Commission.
The defendant, Bruce Karatz, 64, was convicted on two counts of mail fraud, one count of making false statements in a quarterly report filed with the SEC and one count of making false statements to KB Home's accountants. He was acquitted on five counts of mail fraud, five counts of wire fraud, three counts of securities fraud and three counts of making false statements in a proxy statement.
Thom Mrozek, a spokesman for the U.S. Attorney's office for the Central District of California, which prosecuted the case, did not respond to a request for comment.
Karatz's lawyer, John Keker of San Francisco's Keker & Van Nest, issued an e-mailed statement soon after the verdict: "We are pleased that the jury acquitted Bruce Karatz of all the charges alleging backdating. That amounts to eighty percent of the case. Needless to say we are disappointed with the four counts of conviction. But we plan to keep fighting to vindicate Bruce Karatz. There will be post trial motions and an appeal. We continue to believe that Bruce Karatz is innocent. We expect his ultimate vindication."
The jury deliberated for seven days before reaching its verdict. Karatz, who faces up to 80 years in prison, was scheduled to be sentenced on Sept. 8.
Prosecutors had alleged that backdated stock options helped Karatz personally pocket more than $6.5 million between 1999 and 2005, when he resigned from KB Home. His lawyers told the jury that everyone, including his client, believed that they were following the rules in the options granting process, often relying on their lawyers and accountants at Ernst & Young.
The mail fraud counts for which Karatz was convicted relate to a letter sent from KB Home's management to Ernst & Young and a report on stock option grants prepared by KB Home's general counsel and delivered to Ernst & Young. The jury also found that Karatz had made false statements in KB Home's quarterly report in July 2006, as the company was conducting its own investigation of stock options backdating. He was found guilty of having made false statements to Ernst & Young regarding that quarterly report.
The U.S. Attorney's Office lost a significant backdating case in December against two former executives of Broadcom Corp. due to multiple findings of prosecutorial misconduct.