Former KB Home CEO was sentenced to house arrest

KB Homes corporate headquarters on Wilshire Blvd in Los Angeles, California.

Former CEO of KB Home is going to be stuck at home for eight months.

A federal judge is making sure Bruce Karatz doesn't leave his 24-room Bel Air mansion.

Karatz was convicted of fraud in a stock backdating scandal. On Wednesday, U.S. District Judge Otis Wright II ordered him to home confinement - a much lighter punishment than the one the government sought. Prosecutors had pushed for a minimum sentence of six years in prison.

The former CEO also was sentenced to serve five years probation, pay a $1 million fine and put in 2,000 hours of community service.

Karatz was among the highest-paid executives in the U.S. before resigning from KB Home in 2006 amid the backdating scandal.

Companies backdate by retroactively pricing option grants on days when a company's stock price is low. This increases the value of the options and secures financial gains for employees.

The practice is legal, so long as companies record the options as a non-cash compensation expense. Still, the U.S. Department of Justice has charged some executives for failing to disclose the practice.

Prosecutors say Karantz cost KB Home and its shareholders about $11 million. But there was question about how much his crime hurt anybody, which prompted some to propose the lesser sentence.

Joshua Fershee, a law professor at the University of North Dakota, said the case represents a much bigger issue: whether sentencing guidelines are unfairly harsh to low-level criminals like drug dealers. And whether they're too light for white-collar criminals like Karatz.

Prosecutors argued that house arrest for Karatz would amount to a two-tiered criminal justice system, considering his house spans a one-acre property.

Marketplace Reporter Alisa Roth contributed to this report.

Reuters also contributed to this report.


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