LOS ANGELES — Former KB Home chief Bruce Karatz walked away from his stock option backdating trial Wednesday with a $1 million fine and eight months of GPS-monitored detention in his Bel-Air mansion.
U.S District Judge Otis Wright said the sentence, which also includes five years of probation and 2,000 hours of community service, was appropriate for a defendant who had no criminal history and had not been convicted of a violent crime.
He dismissed prosecutors' arguments that excusing the homebuilding giant's former CEO from a harsher sentence would invite claims that he was getting off easy because of his wealth.
"I don't care, sir, whether or not you have a pot to piss in," Wright said to Karatz, who had faced up to 10 years in prison. "What you get here is fairness."
Karatz had no comment after the hearing as he traded handshakes and kisses with the smiling and teary-eyed supporters who had packed to courtroom.
The backers, many of whom had written court briefs in Karatz's defense, included KB Home co-founder Eli Broad – now a prominent philanthropist – former Los Angeles Mayor Richard Riordan and the Rev. Greg Boyle, who founded the Homeboy Industries anti-gang program.
Karatz had become a Homeboy Industries volunteer since his conviction in April, court papers showed.
"I certainly have a sense of relief," said his lawyer, John Keker.
U.S. attorney's office spokesman Thom Mrozek had no comment.
Karatz was found guilty of two counts of mail fraud, one count of lying to company accountants and one count of making false statements in reports to the Securities and Exchange Commission. He was acquitted on 16 other counts and wright later overturned one of the mail fraud counts.
Prosecutors claimed Karatz made $6 million by illegally backdating stock options between 1998 and 2005 while he was chairman and chief executive of Los Angeles-based KB Home. The counts Karatz was convicted of stem from mid-2006, when prosecutors said he concealed and lied about his role in the backdating.
A stock option allows an employee to purchase a company's stock at a preset price at a future date. Karatz retroactively tied the exercise price of his options to dates when the stock was selling for a low price, which increased his profit when he sold the shares.
The maneuver is legal if it is properly accounted for and disclosed to investors. Otherwise, it can allow companies to overstate profits and underpay taxes.
Prosecutors had claimed in a court filing that the gravity of Karatz's offense overwhelmed the penalties recommended by a probation office recommendation on which Wright based his sentence.
The "recommendation suggests that there is a two-tiered system of justice, one for well-connected CEOs who can break the rules ... and then lie about it with virtual impunity, while ordinary citizens ... face far more severe penal consequences," prosecutors wrote.
Wright was visibly angered by the suggestion that the recommendation, which he praised, was unfairly lenient.
"To invite public ridicule and scorn on this institution, I think, is unspeakable," the judge said.
Karatz faced similar charges of manipulating stock options to a case involving several Broadcom Corp. executives. Last year, a federal judge in Orange County threw out charges against Broadcom co-founders Henry Samueli and Henry T. Nicholas III and Chief Financial Officer William Ruehle, citing prosecutorial misconduct.
Wright didn't allow Karatz's attorneys to pursue similar misconduct claims, saying he found no evidence of wrongdoing.
Former human resources head Gary Ray testified at trial that his ex-boss helped engineer and benefited from a shift in company policy for awarding stock options, then tried to conceal his moves from investors.
Karatz's lawyers argued that he didn't knowingly break any laws and questioned Ray's credibility, noting that he pleaded guilty last year to conspiracy to obstruct justice and agreed to testify in return for leniency.
Karatz, Ray and another KB Home executive were forced out in 2006 after the homebuilder discovered stock options had been favorably dated between 1998 and 2005. The probe found that no other senior executives had a role in the backdating scheme.
Karatz agreed to pay some $7 million last year to settle civil charges of backdating stock options, but did not admit any wrongdoing.
Wright said the loss of Karatz's career and the negative publicity he has received during his trial amounted to punishment that he has already served.
When invited to address the court before hearing his sentence, the executive dedicated most of his remarks to his affiliation with Homeboy Industries, which he said had inspired him.
"This has been the most difficult time of my life," he said, reading from a sheet of paper. "Fortunately, I found a place where I can make a difference."
Associated Press writer Greg Risling contributed to this story.