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KB Home CEO Convicted In Stock-Option Cover-Up

The former CEO of Los Angeles-based mega-home-builder KB Home was convicted Wednesday in conneciton with covering up a stock-option backdating scheme that resulted in millions of dollars in extra earnings for himself and fellow company executives, federal authorities announced. He was acquitted of 16 other counts.

Sixty-four-year-old Bruce E. Karatz of Bel Air Estates, also the former chairman of the board of KB Home, was found guilty of "two counts of mail fraud, one count of making false statements in a quarterly report filed with the Securities and Exchange Commission, and one count of making false statements to KB's outside accounting firm, Ernst & Young," according to a statement from the U.S. Attorney's Office in Los Angeles.

In 2006, Karatz tried to cover up seven years worth of backdating even though he had initiated an internal investigation into the practice, federal authorities say. The cover up is what got him convicted. The backdating, which can be legal if reported to shareholders, earned him and fellow executives millions by giving them below-market exercise prices on stocks that could then be sold at higher current values.

Karatz faces a possible term of 80 years in federal prison when he's scheduled to be setneced Sept. 8.

KB Home was cofounded in 1957 by well-known L.A. billionaire and philanthropist Eli Broad.

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