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Gary Ray, key witness in case against former KB Home chief Bruce Karatz, completes testimony

March 19, 2010 |  2:55 pm

The key prosecution witness in the stock-options backdating trial of former KB Home chief Bruce Karatz completed his testimony Friday afternoon after four days on the witness stand.

Gary Ray, who served as KB's vice president of human resources from 1996 to 2006, told jurors in federal court in Los Angeles that he and Karatz carefully selected grant dates when the stock price was low so the options would be more valuable to themselves and employees.

In some instances, the executives waited months after the company's compensation committee had approved options before selecting a grant date, Ray said. Then they would look back and choose a date when the price was at a low point, he said.

Karatz "We never sat down and explained to the committee what we were doing and how we were doing it," Ray said.

Karatz, who served two decades as chief of the Los Angeles-based home builder, faces 20 charges of fraud and making false statements. He has pleaded not guilty and denied any wrongdoing.

Ray, 52, pleaded guilty last year to conspiracy to obstruct justice and agreed to testify against Karatz as part of a plea agreement. Prosecutors have said they will recommend leniency in sentencing in exchange for Ray's testimony. He faces up to five years in prison at his July 12 sentencing.

During more than seven hours of cross-examination, Ray acknowledged that he told numerous lies during his initial meetings with the FBI and federal prosecutors in 2008. Defense attorney John Keker spent much of his cross-examination pinpointing those false statements -- eventually drawing a rebuke from U.S. District Judge Otis D. Wright II.

"I think we've established the man's a liar," the judge said.

Ray explained that he initially denied wrongdoing during the government interviews because he "was not prepared to live up to and admit the mistakes I had made."

Testimony is scheduled to resume Tuesday.

-- Stuart Pfeifer

Photo: Former KB Home Chief Bruce Karatz. Credit: Nick Ut / Associated Press