KB Home Backdating Trial Starts With "Playing By The Rules" defence

Bruce Karatz KB Homes Martha Stewart (AP)Bruce Karatz and Martha Stewart in front of KB Home model in 2006.

The case against former KB Home CEO Bruce Karatz commenced in the U.S. District Court in Los Angeles yesterday, and all eyes are on the U.S. Attorney’s office.Backdating charges against two former executives of Broadcom were dismissed in December due to prosecutorial misconduct, a charge which Karatz also tried in January. Karatz’s request for a hearing was denied by the presiding judge in the case, U.S. District Judge Otis Wright.

National Law Journal: Of the $11 million that he stood to gain as extra compensation through the backdating, Karatz, 64, eventually pocketed more than $6.5 million from 1999 to 2005, when he resigned from KB Home.

“The defendant was looking back and picking the stock option price for himself and for other executives and managers,” [Assistant U.S. Attorney Alex] Bustamante told the jury. “He was the one who stood to benefit the most from the backdating.”

Karatz’s attorney, John Keker of San Francisco’s Keker & Van Nest, outlined a less nefarious grant process in his opening statement to the jury. “The evidence in this case is going to show that with respect to the stock option process, everybody thought they were playing by the rules,” he said.

Bustamante also mentioned that Karatz and former head of human resources Gary Ray started backdating options after KB Home’s compensation committee didn’t cough up the million options with a $1 strike price he wanted in 1998.

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