Ex-KB Home chief avoids jail

By Helen Wright11 November 2010

Former CEO of KB Home, Bruce Karatz, has been sentenced to pay a US$ 1 million fine for committing mail fraud and making false statements during his tenure at the helm of the US house builder.

Karatz - who was convicted in April this year for his role in a 2006 accounting scam involving backdated stock options - must also serve eight months of home detention under electronic monitoring and perform 2000 hours of community service.

Back in April, Karatz was found guilty of four out of a total of 20 charges brought against him by federal prosecutors.

He was acquitted of securities fraud - charges that related to the backdating of stock options, a practice which can enable an executive to retroactively move the date of a stock option back in time to when the stock price was lower, in order to maximise profits.

While the practice of backdating itself is not illegal, failure to properly disclose it is, and Karatz was convicted of hiding the procedure from regulators and auditors.

Karatz's guilty verdicts carried a maximum penalty of 80 years in prison.

But handing down the sentence yesterday (10 November), US judge Otis Wright said his fine and home detention order agreed with his principle of not handing out jail terms to defendants with no criminal record.

His sentence prompted criticism from the federal prosecutors, who were seeking a jail term of six years or more.

Assistant US Attorney Paul Stern is said to have told reporters outside the court in California that his office "respectfully disagrees" with the judge's decision, without elaborating on possible further action.

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