Option backdating settlement
Bruce Karatz, who helped turn Westwood-based KB Home into one of the nation’s most successful home builders during two decades as its chief executive, was convicted Wednesday on four felony charges related to the manipulation of executive stock options. Stock options allow employees to buy a certain amount of stock at a set price, typically the date on which they are granted.A federal jury in Los Angeles convicted Karatz of two counts of mail fraud, making false statements in a regulatory filing and lying to the company’s accountants. The jury rejected the government’s claim that Karatz intentionally defrauded shareholders by backdating stock option grants from 1999 to 2005 to make them more valuable. Wright II said Karatz could remain free on -million bond, secured by his Bel-Air home, until sentencing. Companies can boost the value of these options by backdating them to dates when the stock price was lower than the actual grant date. A federal judge in Santa Ana dismissed charges against both men and against two other company executives, saying prosecutors and unfairly influenced witnesses, making it impossible for the defendants to receive a fair trial.
The case is monumental for shareholders seeking to recover losses sustained as a result of improper accounting for backdated stock options and is the largest recovery in a securities class action in the Eighth Circuit.
The team delved into the company’s documents and internal correspondence, uncovering United Health’s pervasive options backdating scheme.
Robbins Geller attorneys also collectively took more than 50 depositions and engaged in significant motion practice in the months leading up to the close of discovery.
Plaintiffs’ success on these fronts was resounding.
Although accounting issues concerning stock options grants are complex, the documents and testimony plaintiffs acquired during discovery established a strong case regarding liability.