Bruce Karatz, former CEO of KB Homes – Indicited! Were His Choices Ethical?

Having begun a formal probe by the SEC in 2007, a federal grand jury has indicted Bruce Karatz.  The 20-count indictment included seven counts of mail fraud, five counts of wire fraud, three counts of securities fraud, four counts of lying in statements to the U.S. Securities and Exchange Commission and one count of lying to KB Home’s accountants.

Well…with all those indictments, if found guilty on all charges, Mr. Karatz could face up to 415 years in prison.  Seems like the alleged frauds are getting larger as are the potential sentences.

Reported by the Dallas Business Journal:

Los Angeles-based KB Home was the 21st-largest home builder in North Texas in 2008, with 239 housing starts, according to DBJ research. bruce-karatz_454168742The company started 513 North Texas homes in 2007, and 1,216 in 2006.

Karatz, 63, is alleged to have backdated stock options over seven years, awarding himself and others millions in stock-based compensation. Karatz resigned from KB Home (NYSE: KBH) in November 2006 under pressure in the wake of an options inquiry. Other top KB executives forced out were Richard B. Hirst, executive vice president and chief legal officer, and Gary A. Ray, the head of human resources.

The Los Angeles Times reports: “Karatz, 63, served as chairman and chief executive of Westwood-based KB Home from 1986 to 2006, when he resigned under fire. Over a three-year period ending in 2005, Karatz garnered more than $232 million in compensation.”

The Times further reports:

The indictment does not say exactly how much Karatz gained as a result, but KB Home required Karatz to pay back $13 million in backdating gains when he left the company in 2006. And the SEC agreed to a settlement of $7.2 million with Karatz in 2008 to cover what it reckoned were his gains.

Karatz has long been a target of shareholder activists and labor unions, who accused him of taking more than his fair share of company profit. In 2005, the year before he stepped down, Karatz had take-home pay of $6.3 million, but he received an additional $150 million, mostly from exercising stock options.

As a business ethics speaker, it is clear that transparency is the order of the day.  Long gone are the days (or at least they should be gone) when corporate compensation is a behind closed door discussion.  I am certainly open to executive compensation that is fair and rewards those in leadership for outstanding performance.  However, any person in executive leadership in a public company must be alert to the consequences of the choices they make.

Every choice has a conseqence.  Bruce Karatz has been dealing with the consequences of his leadership at KB Home for the past several years.  It would appear that, if convicted, he will have many years ahead to review his leadership choices.

If you worked for KB Homes and have an opinion on Mr. Karatz’s leadership feel free to comment!

7 Responses to Bruce Karatz, former CEO of KB Homes – Indicited! Were His Choices Ethical?

  1. LemonMeister says:

    Great post Chuck, our economy should rewards those in leadership for outstanding performance. Thus the consumer will vote with their wallet. A new dawn has begun – this economic downturn has a positive side after all. Rip off the consumer and see how fast you stock price drops. We will call all of the Bernard Madoff wannabes like Karatz to the Mattress. Can I get your address in prison Bruce? A KB Home Sucks! In his own mind his choices were ethical – in our eyes these choices left us with a home which is not livable or sellable. We hope the Judge in this case will use the Internet to research what this guy did to individuals, the economy and to kb home and it’s shareholders. A reputation is a very hard thing to rescue. Internet postings can live a long time, much longer than any newspaper.

    Cheers Chuck
    Love your Column!

  2. LemonMeister says:

    UPDATE – Bruce’s lawyers this week tried to get evidence thrown out (not allowed) in this case. U.S. District Judge Otis Wright denied the motion Monday by Bruce E. Karatz’s lawyers to exclude the settlement filings and eight other categories of evidence. So strike one against Bruce. The trial begins February 2010. Stay tuned since “Benie Made Off” with the cash, Bruce may be next in line “Bruce Made Off with less than a Billion”at the Grey bar hotel. THX Chuck. I added your post to my twitter feed: AKBHomeSUCKS

  3. Karen Romero says:

    Because of Bruce Karatz and his criminal friends I am currently homeless. Ask Brucie the instructions he gave to have an item buried underneath the house at 5012 Ropers Rock Court Las Vegas Nevada 89131!

    Bruce Karatz has an eternal name and that name is Legion Litter and as for his reputation…that is repugnant like himself. He has been that way in every one of his filthy lifetimes!

    There are takers and givers in the world. Bruce Karatz is a taker and does not like to give. Odd, about him, because he in fact gave his soul to the Devil…OH SO LONG AGO!

    Karen Romero

  4. LemonMeister says:

    Karen I have posted the maps to the property on my TWITTER feed to see if we can get some reaction and a link back to this post. Look for Bruce Karatz trial to begin in Los Angeles Federal Court in February 2010. Karen please contact me www akbhomesucks com

  5. LemonMeister says:

    We are going to picket at the annual shareholders meeting of KB Home on April 1st 2010. Bruce Karatz is on trial this week for stock manipulation. We see very little news on Karatz, could that have anything to do with KB Homes board? Moonves runs CBS, Bollenbach ABC/Disney and Lilly Tartikoff (Mrs. Karatz? – Brandon’s widow) still has friends at NBC? Go to CNN dot com they are not even covering the story.

  6. LemonMeister says:

    KB Home and Countrywide in bed together. Mozilo was here too! KB Home Bruce Karatz on trial for stock manipulation, KB Built Lemons and Countrywide financed them. Yes we made them build lemons, KB Home Bruce Karatz on trial for stock manipulation.

  7. LemonMeister says:

    Join in on my Radio Show “KB Home Sucks” hosted on BlogTalkRadio we have a special segment on Bruce Karatz and his appeal. “It’s not what you know but who you can buy!”. Karatz brings a new low to rats on a sinking ship. Tune in 6pm EST, 8-11-2010.

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