February 24, 2007
Criminal Investigation of KB Home's Options Backdating
The Department of Justice is looking at the options issuance practices of KB Home, joining a previously-disclosed SEC formal investigation. According to a company press release (here): "KB Home's past stock option grant practices are being investigated by the Securities and Exchange Commission. The Department of Justice is also looking into these practices but has informed KB Home that it is not a target of this investigation. KB Home has and intends to fully cooperate with any government agency looking into this matter." On November 12, 2006, the company announced (here) that long-time CEO Bruce Karatz was retiring, and he "voluntarily" agreed to repay the difference between the lower, backdated strike price and the proper price on options he had exercised. In addition, KB Home's human resources director was fired, and its general counsel resigned. While the disclosure of a criminal investigation does not necessarily mean charges will be filed, the fact that it comes on the heels of the SEC upgrading its investigation from an informal inquiry likely means the government will be looking at a wide range of transactions, and the company's former officers are the probable targets of the investigation. (ph)
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Its interesting that these executives profited with in the money options yet claim they didn't know they were doing something wrong. Offering to pay back the difference should not make these charges go away, if anything it is an admission of guilt. Its similar to stealing and giving back when you are caught. Shame these tend to not do well in trial.
Posted by: Shawn | Feb 28, 2007 10:07:06 PM