SEC is probing KB Home

KB Home, one of the nation’s largest home builders, is under investigation by the Securities and Exchange Commission “regarding possible accounting and disclosure issues.”

The investigation opens a fresh round of scrutiny of the company. Its former chief executive, Bruce Karatz, is awaiting trial on federal charges he fraudulently manipulated stock options.

In 2006, Karatz resigned after an internal investigation found he had backdated his own stock option grants to increase his pay. In 2008, Karatz agreed to pay more than $7 million to settle SEC charges but didn’t admit wrongdoing.

The company’s former head of human resources, Gary A. Ray, in May agreed to pay $550,000 to settle SEC charges of stock option backdating.


The Los Angeles-based company disclosed the latest investigation in a quarterly regulatory filing Friday and confirmed it in a statement Monday.

“The SEC order does not specify the subject matter, and we cannot speculate on it at this time,” company spokeswoman Heather Reeves said in an e-mail.

“KB Home strives to operate its business with the utmost transparency and integrity, and in accordance with generally accepted accounting principles,” the statement said.

KB Home shares fell $1.29, or 8%, to $15.17 on Monday.

Along with the disclosure of the pending investigation, the company also noted in its quarterly SEC filing that it had been sued by former employees alleging the stock backdating scheme caused the employee retirement plan to purchase stock at higher prices.

The suit said the company’s officers and directors, through the backdating scheme, “surreptitiously and illegally lined [their] pockets and caused KB Home to issue materially false financial statements.”

The suit seeks unspecified damages, including losses caused by the retirement plan investing in KB Home stock instead of other securities and purchasing company stock at inflated prices. The company has filed a motion to dismiss the suit, and a hearing on that motion is scheduled for Nov. 9. The suit is scheduled to go to trial in November 2010.

KB Home’s filing also noted the ongoing struggles of the national housing market. “A general oversupply of new and resale homes, exacerbated by rising mortgage delinquencies and foreclosures, continued to depress prices and intensify competition, while poor job market conditions, tight mortgage lending standards and weak consumer confidence restrained demand,” it said.