From the Los Angeles Times: The highest paid executive in the building industry, Bruce Karatz of KB Homes, is in trouble for stock option shenanigans.
He "earned" $156,000,000 in 2005. That's a big developer. The big fall harder.
In the lawsuit, filed in Los Angeles County Superior Court this week, KB shareholder Sylvie Davidson alleges that on 16 occasions from January 1995 to October 2005, the company, with certain board members' approval, improperly dated stock option grants.
In a striking pattern that could not be the result of chance, each and every one of the foregoing stock option grants was dated just before a substantial rise" in KB Home's stock price, the lawsuit states. The biggest 10-day rise was 36.3% in October 1999, according to the complaint….
For KB Home, the stock option controversy comes as the home-building industry contends with a rapidly deteriorating housing market that has started to hinder profit growth and pummel stocks in the sector. Shares of KB slumped $2.66, or 6.2%, to $40.53 on Wednesday, leading another broad sell-off in builders' shares after news of disappointing sales of existing U.S. homes.
JPMorgan analyst Michael Rehaut downgraded KB Home's stock because of the litigation's potential to divert Karatz's attention and possibly draw on company cash.
That popping noise you hear in California is decidedly not champagne.