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Justice Dept. probing past KB Home options
2007-02-23
KB Home, the No. 5 U.S. home builder, said on Friday the Justice Department was looking into past stock options practices at KB, but added the agency said KB Home was not a target of the investigation. "KB Home has and intends to fully cooperate with any government agency looking into this matter," the company said in a statement. Separately, Mark Beck, an attorney for former KB Home human resources chief Gary Ray, said in a telephone interview that prosecutors had asked to speak with Ray and other former executives as part of a stock options probe. Beck said his client has done nothing wrong. The U.S. Securities and Exchange Commission started looking into the company's stock options practices last August. Last November, following an internal investigation by KB Home into its stock options practices, Chairman and Chief Executive Bruce Karatz abruptly retired, Ray was fired and Richard Hirst, the company's chief legal officer, resigned. At that time, KB Home said that based on an internal investigation into stock options backdating, its "board of directors concluded that Mr. Karatz and Mr. Ray selected grant dates under the company's stock option plans." Backdating of options allows the holder to reap a greater profit when the option is exchanged. KB has said the practice occurred from 1998 to 2005. The U.S. Attorney's Office in Los Angeles declined to comment, as did the U.S. Securities and Exchange Commission. A source close to the situation said the investigation was in the "early stages." Karatz may still be the largest individual stakeholder, controlling up to 5.1 percent of its common stock, according to the company's proxy filed this week with the SEC. However, a court order barring Karatz from exercising his options has prevented the company from determining Karatz's stake, KB Home said in the filing. Some of the company's largest institutional shareholders are putting up for a vote three proposals that would change the company's compensation practices. The board has recommended that shareholders vote against all three proposals, according to the proxy.
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