Former KB Home CEO charged with fraud

As the SEC mulls civil charges against former Countrywide CEO Angelo Mozilo (see below), a federal grand jury today handed down a 20-count indictment against former KB Home CEO Bruce Karatz for criminal fraud.

Here's part of the press release from the Department of Justice:

A former CEO and chairman of the board of KB Home was named today in a 20-count indictment that charges him in a scheme to defraud KB and its shareholders by awarding himself and other KB executives millions of dollars in undisclosed stock-based compensation in connection with the backdating of stock options over a seven-year period.

Bruce E. Karatz, 63, of Bel Air Estates, was charged with seven counts of mail fraud, five counts of wire, three counts of securities fraud, four counts of making false statements in reports filed with the Securities and Exchange Commission, and one count of lying to KB’s accountants.

This scheme alleged in the indictment involves Karatz’s use of hindsight pricing to inflate the value of stock options granted to him and other KB executives, as well as Karatz’s ongoing concealment of this practice from KB’s board of directors, Compensation Committee and shareholders. Furthermore, the indictment alleges, when an internal investigation into stock-option backdating was initiated at KB in May 2006, Karatz falsely denied his orchestration of the stock-option backdating scheme and caused a false report of KB’s historical option-granting practices to be submitted to KB’s Audit Committee and outside auditor, which impeded the timely and accurate disclosure of this matter in filings with the Securities and Exchange Commission.