KB Home Says SEC Will Probe
Its Granting of Stock Options
by Michael Corkery
From The Wall Street Journal Online
August 28, 2006
KB Home said that the Securities and Exchange Commission will be conducting an "informal inquiry" into the company's stock-option grants.
On Wednesday, The Wall Street Journal reported that several past stock-option grants to Bruce Karatz, the Los Angeles home builder's chief executive, were dated at unusually low points in the company's stock price. KB Home said late yesterday that it would cooperate with the SEC probe.
Four grants to Mr. Karatz between 1998 and 2001 were propitiously timed. One was dated at the stock's lowest closing of the year, another at a quarterly low, and the remaining two at monthly lows.
Mr. Karatz was one of the highest-paid executives in the U.S. in 2005, according to the Journal's annual survey of executive compensation. His total direct compensation in 2005 was $155.9 million, the bulk of it coming from exercising options, according to the Journal article. KB Home has said his compensation was based on company performance.
With the informal SEC inquiry, KB Home joins scores of other companies facing federal probes of their option-granting practices. The probes are concentrating on the practice of backdating, in which an option's grant date is manipulated so that the grant appears to have been made at a time when the company's share price is low. That increases the potential profit to the option's recipient.
Backdating has led to civil and criminal fraud charges in a few cases, while the practice also can present accounting and tax troubles. Earlier this month, federal prosecutors charged three former executives of Comverse Technology Inc. in an alleged backdating scheme; one remains a fugitive. Two former officials of Brocade Communications Systems Inc. have also been criminally charged with backdating-related offenses.
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