KB Home, one of the largest home builders in the country, said its chief executive officer Bruce Karatz has resigned, the latest among dozens of executives to leave publicly traded companies in a widening stock-options scandal.
Karatz, who has led the building company for 34 years, agreed to pay $13 million to KB Home after an investigation found that the Los Angeles-based company had incorrectly reported stock-options grants, according to a statement released Sunday.
Jeffrey T. Mezger will replace Karatz as president, CEO and a director, the company said.
The investigation found that the company used incorrect measurement dates for annual stock-option grants from 1998-2005. In an announcement, KB Home said it “expects that the incremental non-cash compensation expense arising from these errors is not likely to exceed and aggregate of $50 million, spread over the vesting periods of the options in question.”
The errors may also require an increased tax provision, and KB Home along with independent auditors is looking at whether it will need to restate previously released financial statements.
KB Home’s board has also terminated Gary A. Ray, the company’s head of human resources, and announced the resignation of Richard B. Hirst, who served as executive vice president and chief legal officer.
The investigation found that Karatz and Ray selected grant dates under the company’s stock-option plans. The committee concluded that Mezger and other current senior executives had no role in establishing incorrect grant dates. The investigation did not find whether Karatz’s actions were intentional wrongdoing.
The investigation was led by members of the company’s internal audit committee, independent legal counsel from Irell & Manella LLP and accounting assistance from FTI Consulting. KB Home said it will continue to cooperate with inquires from the U.S. Securities and Exchange Commission and other government agencies.
Karatz is the latest involved in backdating of employee stock options without properly accounting for the change, according to media reports. At least 30 executives and directors, including William McGuire of UnitedHealth Group Inc., have lost their jobs, the Associated Press reported.
More than 160 companies across the country have said that their stock-option practices are being investigated or reviewed by the government, the AP reported.
Backdating is legal as long as backdated stock options are properly recorded on company books, but if the accounting of these rewards is messed up, it can impact profits and improperly lower taxes, the AP said.