Convicted KB Home Ex-CEO Bruce Karatz Loses Bid for New Backdating Trial

Former KB Home Chief Executive Officer Bruce Karatz lost his bid for a new trial six months after a jury convicted him of hiding backdated stock options from auditors and regulators.

U.S. District Judge Otis D. Wright II, at a hearing today in Los Angeles, upheld three of the four counts on which Karatz was found guilty, setting aside one count of mail fraud. Prosecutors had failed to provide sufficient evidence that any mailing had actually taken place to support the conviction on that count, the judge said.

“I don’t find we’ve established at this point that there’s been a miscarriage of justice,” Wright said in denying the request for a new trial. “And I don’t find that Mr. Karatz didn’t get a fair trial.”

In April, jurors found Karatz guilty of two counts of mail fraud and two counts of making a false statement. He was acquitted of 16 charges, including mail and wire fraud, securities fraud and filing false proxy statements. He faced as many as 80 years in prison based on the jury conviction.

The government, in a filing yesterday, objected to a presentence report from the U.S. Probation Office that recommended no prison time based Karatz’s conviction on the four counts.

‘Bel-Air Mansion’

The Probation Office’s conclusion is that Karatz “should receive a sentence of five years probation, eight months of which is to be served as ‘home confinement’ in defendant’s 24- room Bel-Air mansion situated on a one acre estate,” prosecutors said.

The government wants Wright to sentence the former chief executive to a “substantial term of imprisonment,” according to the filing. Karatz is scheduled to be sentenced Nov. 10.

Prosecutors accused him of unauthorized and undisclosed backdating of stock options that brought him $6.62 million in compensation he wasn’t entitled to from 1999 to 2005. He stepped down as chief executive at Los Angeles-based KB Home in 2006 after 20 years in charge of the homebuilder.

Elliot Peters, a lawyer for Karatz, declined to comment after the hearing.

The case is U.S. v. Karatz, 09-203, U.S. District Court, Central District of California (Los Angeles).

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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