KB Home Faces DoJ Probe

Already under formal investigation by the SEC, the homebuilder says the Department of Justice is now investigating as well, but implies that the Feds are focusing on individuals, not the company.

KB Home late Friday said that the Department of Justice is looking into its past stock option practices. The homebuilder stressed in a press release that the company itself is not a target of the investigation.

In January, KB said the Securities and Exchange Commission upped its probe of the stock option granting practices at KB Home to a formal investigation. In August, officials at the home builder said the company had received an informal inquiry from the regulator.

In December, the company announced it would restate its financials going back to its 2003 fiscal year after a board subcommittee concluded it used incorrect measurement dates for financial reporting purposes for annual stock option grants for the fiscal years 1999 to 2005. It also said that it estimates the total non-cash compensation expense will amount to about $41 million spread over several years.

In November, chairman, chief executive officer and director Bruce Karatz retired following an internal investigation that found that he and Gary A. Ray, the head of human resources, “selected grant dates under the company’s stock option plans,” according to a regulatory filing at the time. Ray was fired, and Richard B. Hirst, KB’s chief legal officer resigned.

Karatz agreed to repay the company about $13 million that he had received as a result of the mispriced options. In 2005, Karatz earned about $156 million, which included more than $118 million from gains on exercised stock options and another $28 million in restricted stock awards.

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