LOS ANGELES – The former head of construction giant KB Home was convicted Wednesday of four felony counts in a stock option backdating scam.
A federal jury in Los Angeles found Bruce Karatz guilty of two counts of mail fraud, one count of lying to company accountants and one count of making false statements in reports to the Securities and Exchange Commission.
Prosecutors claimed Karatz illegally backdated his stock options between 1998 and 2005 while he was chairman and chief executive of KB Home.
A stock option allows an employee to purchase a company’s stock at a preset price at a future date. Karatz retroactively tied the exercise price of his options to dates when the stock was selling for a low price, which increased his profit when he sold the shares.
The maneuver is legal if it is properly accounted for and disclosed to investors. Otherwise, it can allow companies to overstate profits and underpay taxes.
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