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A community leader sent a letter stating as follows:
A community leader sent a letter stating as follows:
Bruce has always been the “can-do” guy, requiring virtually no public attention or accolades. While a common lament about Los Angeles is that it has lost many of the iconic figures who propelled its prosperity and sense of community purpose, Bruce has repeatedly stepped up to fill the void, always taking on the tough jobs--for kids, for minorities, for abused women, for the arts, for education, for the LAPD, and for conservation and the environment. Mayors Bradley and Riordan turned to Bruce time and time again when there was a need for leadership. The results include everything from Rebuild LA, which Bruce chaired after the civil unrest in the early 1990s, to Camp Hollywoodland, to the Mayor’s Alliance for a Safer LA, and the list goes on. At the University of California, where I also chair a board, Bruce has been a wise counselor and strong supporter, serving on the Board of Trustees, and importantly, as a driving and pivotal member of the Board of Counselors for the USC Gould School of Law. His interests there have always been to increase quality and to extend the outreach of our University to meet the needs of the broader community. <ref name="U.S.A. v. Karatz">
</ref>
Bruce has always been the “can-do” guy, requiring virtually no public attention or accolades. While a common lament about Los Angeles is that it has lost many of the iconic figures who propelled its prosperity and sense of community purpose, Bruce has repeatedly stepped up to fill the void, always taking on the tough jobs--for kids, for minorities, for abused women, for the arts, for education, for the LAPD, and for conservation and the environment. Mayors Bradley and Riordan turned to Bruce time and time again when there was a need for leadership. The results include everything from Rebuild LA, which Bruce chaired after the civil unrest in the early 1990s, to Camp Hollywoodland, to the Mayor’s Alliance for a Safer LA, and the list goes on. At the University of Southern California, where I also chair a board, Bruce has been a wise counselor and strong supporter, serving on the Board of Trustees, and importantly, as a driving and pivotal member of the Board of Counselors for the USC Gould School of Law. His interests there have always been to increase quality and to extend the outreach of our University to meet the needs of the broader community. <ref name="U.S.A. v. Karatz">
</ref>


At the sentencing hearing, Judge Wright, in rejecting the government’s request for an order sending Mr. Karatz to prison for six and a half years, called the government’s sentencing memorandum “mean-spirited and beneath this office.” <ref>http://dealbook.nytimes.com/2010/11/11/judge-slams-backdating-prosecutors-in-karatz-case/</ref>
At the sentencing hearing, Judge Wright, in rejecting the government’s request for an order sending Mr. Karatz to prison for six and a half years, called the government’s sentencing memorandum “mean-spirited and beneath this office.” <ref>http://dealbook.nytimes.com/2010/11/11/judge-slams-backdating-prosecutors-in-karatz-case/</ref>

Revision as of 18:23, 9 May 2011

Bruce Karatz
Born (1945-10-10) October 10, 1945 (age 78)
Chicago, Illinois, U.S.
Occupation(s)Homebuilder, philanthropist
Websitehttp://www.KeepYourHomeFoundation.com/

Bruce Karatz (born 1945) is an American homebuilder and philanthropist noted for his role as CEO in the development of KB Home from 1972 through 2006,[1] and for his philanthropic efforts to help re-build Los Angeles after the L.A. Riots and New Orleans following Hurricane Katrina.[2] On April 21, 2010, Karatz was found guilty of two counts of mail fraud and two counts of making a false statement. He was acquitted of 16 others charges, including securities fraud and filing false proxy statements.[3] On October 15, 2010, Judge Otis D. Wright II dismissed one of the two counts of mail fraud of which the jury had found Mr. Karatz to be guilty based on lack of evidence. [4] On November 10, 2010, Judge Wright sentenced Mr. Karatz to probation for a term of five years, rejecting prosecutors’ request for a lengthy prison sentence, noting that there was no evidence that Mr. Karatz’s actions damaged KB Home or its shareholders. [5]

Early life

Karatz was born in Chicago, Il and raised in Minneapolis, Minnesota to a middle class Jewish family where his father owned a movie theater and his mother was a homemaker. He graduated from high school in 1963 and from Boston University in 1967. Karatz received his Juris Doctor degree from the University of Southern California in 1970.

Career

In 1972, Karatz joined Kaufman & Broad (the company took the KB Home name in 2001) as an associate general counsel.[1][2]

After spending a short time as an in-house counsel, Karatz moved to the home building side of the business and soon thereafter became head of KB Home’s French division. He made a mark in 1977 when he installed a full-sized model home on the roof of the Au Printemps department store. More than 500,000 people toured the rooftop house. During his time in France, KB Home grew into one of France's largest homebuilders.[2]

In 1981 Karatz re-joined the Los Angeles headquarters of KB Home and in 1986 was named CEO. As CEO, Karatz oversaw the company’s growth into one of the most successful home building companies in the world. Karatz is credited with changing the company’s business model of building homes on speculation and then selling them in favor of building houses on order. KB Home's new business model allowed middle class home buyers to customize their homes and defined a far more efficient and profitable business model for the industry.[2]

In the early 1990s, when the real estate market in Southern California collapsed, Karatz moved aggressively to expand the company by acquiring other regional home builders such as the San Antonio-based builder Rayco for $105 million in 1996. The success of the new business model led KB Home to acquire additional companies and expand organically into markets across the country to provide customized homes for middle class families.[2]

As CEO, Karatz built on his Paris marketing achievements. Working with Fox Broadcasting, which was celebrating the tenth anniversary of The Simpsons, KB Home constructed a real-life replica of the Simpsons' home in one of KB Home's Nevada subdivisions, which helped turn Las Vegas into KB Home's top market.[6]

During his tenure as CEO, KB Home became a Fortune 500 company. Karatz oversaw a 1476% increase in the company’s market capitalization, an 800% increase in the companies stock price, a 575% growth in revenue, a 400% rise in dividends and increased the number of employees from less than 500 to over 6,000. In 2006, KB Home was ranked the #1 homebuilder in Fortune Magazine’s 2006 list of America’s Most Admired Companies and was listed by Fortune as one of America’s Most Admired Companies[4] and won the American Business Award as the Best Overall Company.[7] Karatz in turn became one of the country's highest-paid CEOs during this time.

Philanthropic Activities

In December, 2005, shortly after Hurricane Katrina, Karatz directed that KB Home become the first, and at that time only, national homebuilder to go to New Orleans to support re-building efforts in the wake of Hurricane Katrina. KB Home acquired 74 finished lots in downtown New Orleans and bought 3,000 acres in Jefferson Parish. At the time, Karatz said,

“We're now seven, eight months into post-Katrina, and we're the only ones that have stepped up. I honestly think that's part of the problem with New Orleans: It's a weak business community. And I personally felt it was important for a company like ours to do something, because if we waited for others, we could be waiting a long time. And if we're successful, it will motivate others.”

[8]

Karatz had to overcome reservations of KB Homes’ Board of Directors. Fortune Magazine wrote at the time, “It’s not often you hear a CEO express goals in humanitarian, not bottom-line, terms, especially when its shareholder money with which he’s do-gooding.” [2]

Karatz agreed to make KB Home the builder for an episode of ABC’s Extreme Makeover Home Edition after listening to a pitch from employees. The show featured a family headed by a single mother, Patricia Broadbent, who had been diagnosed with lung cancer and had seven children. Six of the children were adopted, three of those born with HIV.[9]

Ms. Broadbent is a longtime children’s advocate, former social worker and an internationally recognized AIDS activist.[9]

Rather than remodel the family’s home, Karatz decided to raze it and build a 3,200-square-foot (300 m2) home in 48 hours. Hundreds of workers and KB Home demolished the Broadbents’ 1,450-square-foot (135 m2) cinderblock house while Ms. Broadbent and three of her daughters were on vacation. In the closing moments of the episode, Karatz tore up the family’s mortgage, promised to pay off the entire loan on their behalf and said they’d never have to worry about making those payments again.[9]

In 1992 after the Los Angeles riots, Kaufman and Broad spearheaded the effort to rebuild Camp Hollywoodland, a rustic canyon retreat for inner-city children whose main hall, dining room and other structures were gutted by fire.[10]

In 2007, Karatz founded the Keep Your Home Foundation to support people in California facing foreclosures as a result of the mortgage crisis. Keep Your Home Foundation supports a clearinghouse website to provide information to homeowners facing foreclosure.

In a November 2004 cover article, The USA Today said of him, “Karatz brings honesty that people around him notice.” [6]

Since May 2010, Mr. Karatz has worked as a full-time volunteer and financial supporter of a non-profit agency, HomeBoy Industries. [5]


Karatz other philanthropic initiatives include:

He has been recognized for his philanthropic leadership, including:

  • Human Relations Award, American Jewish Committee (2004)
  • Ellis Island Medal of Honor, National Ethnic Coalition of Organizations (2003)
  • Crystal Angel Award, Los Angeles Police Foundation (2002)
  • Distinguished Humanitarian Award, B’nai B'rith (2000)
  • Chevalier of the Legion of Honor, Presented by the Pres. Of France (1999)
  • Spirit of Life Award, City of Hope National Medical Center (1996)
  • Jack Webb Award, LA Police Historical Society (1995)
  • Distinguished Service Award, The Aviva Center (1994)
  • Humanitarian of the Year Award, National Association of Christians and Jews (1984)

Indictment

On Nov. 12, 2006 Karatz agreed to leave KB Home and to pay the company the difference between the initial strike price of his stock options and the closing price on the new “measurement date” for options he had exercised that were incorrectly priced.[11]

In 2008, in resolution of the November 12, 2006 agreement with the company, Karatz paid $8.5 million to KB Home. In addition, Karatz paid $480,000 to settle a Securities and Exchange Commission civil case. He did not admit or deny wrongdoing.[12]

In March 2009, Karatz was indicted for his role in option granting process at KB Home. He was accused of selecting backdated stock option grant dates for himself and others at KB Home and then failing to fully disclose this to the company's board, shareholders, accountant’s and regulators.[13] He plead not guilty and denied wrongdoing.[14]

Verdict

On April 21, 2010, Karatz was found guilty of two counts of mail fraud and two counts of making a false statement. He was acquitted of 16 others charges, including securities fraud and filing false proxy statements. The jury found Mr. Karatz “not guilty” on all counts charging the actual “backdating” of KB stock options.

After the verdict, Karatz issued the following statement: "I will continue to get strength from the support of my family, including my wife, children and grandchildren, good friends and former colleagues. And while this is personally a challenging time, what I continue to value from my time as the CEO of KB Home is the fact that we successfully built a strong company, created more than 5,000 good paying jobs and executed upon a business strategy that created very, very significant shareholder value—all resulting in KB Home being listed in 2006 as one of "America’s Most Admired Companies".

On October 15, 2010, Judge Otis D. Wright II dismissed one of the two counts of mail fraud of which the jury had found Mr. Karatz to be guilty based on lack of evidence. [4] On November 10, 2010, Judge Wright sentenced Mr. Karatz to probation for a term of five years, including eight months in a home detention program, and fined him $1,000,000. Judge Wright rejected prosecutors’ request for a lengthy prison sentence, noting that there was no evidence that Mr. Karatz’s actions damaged KB Home or its shareholders. [5] A federal probation officer had recommended the sentence that Judge Wright imposed, saying he was swayed by Mr. Karatz’s long history of philanthropy, previously clean record and the lack of a financial loss. [5] The report of the Probation Office stated in part as follows:

Truly, in the collective 30 plus-year experience of the undersigned Probation Officer and Supervising Probation Officer, this office has never seen such an array of efforts to assist the community . . . These letters [submitted on Mr. Karatz’s behalf] all note the defendant’s support during times of need. Most notably, the letters describe the involvement of the defendant and reflect a participation that involved much more than mere financial donations. This is not a man who simply shared his wealth. He extensively shared his expertise and time as well. [15]

A community leader sent a letter stating as follows: Bruce has always been the “can-do” guy, requiring virtually no public attention or accolades. While a common lament about Los Angeles is that it has lost many of the iconic figures who propelled its prosperity and sense of community purpose, Bruce has repeatedly stepped up to fill the void, always taking on the tough jobs--for kids, for minorities, for abused women, for the arts, for education, for the LAPD, and for conservation and the environment. Mayors Bradley and Riordan turned to Bruce time and time again when there was a need for leadership. The results include everything from Rebuild LA, which Bruce chaired after the civil unrest in the early 1990s, to Camp Hollywoodland, to the Mayor’s Alliance for a Safer LA, and the list goes on. At the University of Southern California, where I also chair a board, Bruce has been a wise counselor and strong supporter, serving on the Board of Trustees, and importantly, as a driving and pivotal member of the Board of Counselors for the USC Gould School of Law. His interests there have always been to increase quality and to extend the outreach of our University to meet the needs of the broader community. [15]

At the sentencing hearing, Judge Wright, in rejecting the government’s request for an order sending Mr. Karatz to prison for six and a half years, called the government’s sentencing memorandum “mean-spirited and beneath this office.” [16]

On December 14, 2010, Mr. Karatz and the prosecutors filed a stipulation dismissing their respective appeals of the trial court’s judgment and order.[17]

Post-sentencing press reports stated that, in retrospect, the backdating “scandal” was overblown. [18] Although more than 800 companies used some form of lookback to price their stock options, only a handful of people were unlucky enough to face serious consequences as a result. [19] Some 2,000 public companies engaged in backdating at some point. Some 150 companies eventually restated their past results to conform to the proper rule for expensing such options. Yet only a few executives were singled out for criminal prosecution. [20]

Political Activity

Over the years, Karatz generated attention over his support of Democratic candidates,[6] including Bill Clinton, Barack Obama, Al Gore, Antonio Villaraigosa and Dianne Feinstein (according to public campaign finance records.)

Family life

Karatz lives in Los Angeles and has three adult children, Elizabeth, Matthew and Teddy, and four grandchildren. He was married from 2001 to 2005 to Sandra Lee.[21] Currently, he is married to Lilly Tartikoff, a leading cancer activist best known for co-founding the annual Revlon Run/Walk events in New York and Los Angeles and Revlon/UCLA Women's Cancer Research Program, which helped raise more than $80 million for cancer research.

References

  1. ^ a b Berry, Kate (2004-9-6). “Coming home: Bruce Karatz started as in-house counsel, but learned the business and turned what is now KB Home into an international market leader (Interview).” http://www.highbeam.com/doc/1G1-122661156.html Los Angeles Business Journal
  2. ^ a b c d e f Birger, Jon (2006-3-29). “Man on a Mission: Why on earth has KB Home CEO Bruce Karatz launched a major building project in the wildly uncertain New Orleans real estate market?” http://money.cnn.com/magazines/fortune/fortune_archive/2006/04/03/8372982/index.htm Fortune (Time Inc.)
  3. ^ Bruce Karatz found guilty on stock option backdating charges. http://www.tradingmarkets.com/print/news/stock-alert/kbh_bruce-karatz-found-guilty-on-stock-option-backdating-charges-929593.html
  4. ^ a b http://www.businessweek.com/news/2010-10-15/convicted-kb-home-ex-ceo-karatz-won-t-get-new-trial.html
  5. ^ a b c d Stuart Pfeifer, Five Years Probation for ex-KB Home CFO, Los Angeles Times, November 11, 2010
  6. ^ a b c Krantz, Matt (2004-11-22). “KB chief builds on creativity: CEO of homebuilder steps outside box to get attention.” http://www.usatoday.com/educate/college/careers/profile43.htm USA Today
  7. ^ "KBHome - KB Home Wins American Business Award For Best Overall Company". Kaufmanandbroad.com. Retrieved 2010-09-14.
  8. ^ Knox, Noelle (2006-3-21). “KB Home bets on Stewart, New Orleans.” http://www.usatoday.com/money/economy/housing/2006-03-21-kb-home-usat_x.htm USA Today
  9. ^ a b c "Extreme Makeover: Home Edition: How'd They Do That?: Broadbent Family Episode Summary on". Tv.com. 2008-03-26. Retrieved 2010-09-14.
  10. ^ 18 June, 1992 (1992-06-18). "18Jun92 USA: KAUFMAN AND BROAD LEADS REBUILDING OF CAMP HOLLYWOODLAND IN CALIFORNIA. | News | Construction News". Cnplus.co.uk. Retrieved 2010-09-14.{{cite web}}: CS1 maint: numeric names: authors list (link)
  11. ^ KB Home Form 8-K filed November 13, 2006
  12. ^ SEC v. Karatz, U.S.D.C. Cent. Dist. Cal., Case No. CV08-06012
  13. ^ Keating, Gina (2009-3-5)“2-Ex-KB Home CEO indicted in alleged backdating scheme: Ex-CEO Bruce Karatz accused in backdating scheme.” http://www.reuters.com/article/idUSN0537324620090306 Reuters
  14. ^ United States v. Bruce E. Karatz, U.S.D.C. Cent. Dist. Cal., Case No. CR09-00203
  15. ^ a b U.S.A. v. Karatz, United States District Court, Central District of California, Case No. 2:09-cr-00203-ODW, Docket Entry #446, November 5, 2010 (“Defendant Bruce Karatz’s Sentencing Memorandum”) Cite error: The named reference "U.S.A. v. Karatz" was defined multiple times with different content (see the help page).
  16. ^ http://dealbook.nytimes.com/2010/11/11/judge-slams-backdating-prosecutors-in-karatz-case/
  17. ^ U.S.A. v. Karatz, United States Court of Appeals for the Ninth Circuit, Case Nos. 10-50572, 10-50592, Docket Entry #2, December 14, 2010 (“Joint Motion for Dismissal of Appeal and Cross Appeal”)
  18. ^ Jenkins, “The Backdating Molehill Revisited,” Wall Street Journal, December 15, 2009>
  19. ^ See Edelson and Whisenant, “A Study of Companies With Abnormally Favorable Patterns of Executive Stock Option Grant Timing,” Bowers College of Business, August 16, 2009 at page 2; See also Peter Lattman Prosecutions in Backdating Scandal Bring Mixed Results, New York Times, November 12, 2010.
  20. ^ Holman W. Jenkins, Jr., The Backdating Embarrassment, The Wall Street Journal, November 17, 2010.
  21. ^ New York Post http://www.nypost.com/pagesixmag/issues/20091203/Sandra+Lee+and+Andrew+Cuomo+Love+Story. {{cite news}}: Missing or empty |title= (help)


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