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Testimony concludes in trial of former KB Home chief Bruce Karatz

April 6, 2010 | 12:00 pm

Testimony concluded Tuesday morning in the trial of former KB Home chief Bruce Karatz, who federal prosecutors allege made $6 million in secret profits by backdating stock option grants for himself and other company executives and failing to account for it in regulatory filings.

U.S. District Judge Otis D. Wright II scheduled closing arguments for Thursday, meaning jurors would likely begin deliberations on Friday -- four weeks after testimony began in the federal courthouse in Los Angeles. The judge said he would read legal instructions to the jury on Wednesday.

Karatz, 64, who guided the Westwood-based home builder from 1986 to 2006, faces 20 felony counts of securities fraud, wire fraud, mail fraud, making false statements on public filings and lying to auditors of a publicly traded company.

The company's former human resources chief, Gary Ray, testified that he and Karatz secretly selected option grant dates to make them more valuable from 1999 to 2005 and then schemed to keep the process a secret from regulators.

Several defense witnesses, however, said that the options process was well-known to many employees and that the company's legal department thought it was proper.

The Securities and Exchange Commission and Department of Justice began investigating stock option grants in 2005, causing an estimated 200 companies to restate their earnings and ultimately leading to the prosecutions of executives at several companies.

-- Stuart Pfeifer