Ex-KB exec to plead guilty in options case
KB Home Corp.’s former head of human resources agreed Monday to plead guilty to conspiring in 2006 with then-Chief Executive Bruce Karatz to obstruct a probe of options-backdating at the Los Angeles home builder.
Gary A. Ray, 50, faces up to five years in prison, the U.S. attorney’s office in L.A. said.
KB Home fired Ray in November 2006 after the company said that he and Karatz, the firm’s longtime CEO, had a direct role in cherry-picking dates for stock option grants after the fact, so as to inflate their value for executives.
Normally, the purchase, or exercise, price of an option is supposed to be the stock price on the date of the grant. By backdating grants to days when the stock price was particularly low, a company could turn options into guaranteed income for officers.
KB Home is one of more than 200 companies that have been investigated in the options scandal since 2005.
Ray “agreed to plead guilty to conspiring with the CEO of KB in spring 2006 to impede and obstruct a contemplated investigation by the Securities and Exchange Commission into stock option backdating at KB,” the U.S. attorney’s statement said.
Ray said he and Karatz collaborated to cause the firm’s general counsel to submit a “false and misleading report” on KB Home’s option-granting practices to the company’s directors, the government said.
There was no mention of Karatz by name in the statement. Karatz, 63, left the firm at the same time Ray was fired.
In September, Karatz agreed to pay more than $7 million to settle SEC claims that he took part in the backdating scheme, but he didn’t admit or deny wrongdoing.
The government said its criminal probe of the KB Home case was continuing, and that Ray had agreed to cooperate.
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