Bruce Karatz, former CEO of KB Homes, was sentenced last Wednesday for fraud and false statements in connection with underlying stock-options backdating charges (of which he was acquitted.) He received eight months of house arrest, five years probation, $1 million in fines, and 2,000 hours of community service, the sentence recommended in the probation office’s presentence investigation report (PSR). Judge Otis D. Wright II admonished the prosecutors for their “mean-spirited” sentencing memorandum.
This New York Times article explains the backdating scandal and its results, quoting one professor who analogized it to a “corporate crime lottery.” Although backdating was a widespread practice, relatively few corporate executives have been prosecuted, and then with mixed results. The longest prison sentence given to a backdating defendant has been 2 years.
In this case, the government requested 6 years incarceration and $7.5 million in fines. In their sentencing memorandum, prosecutors argued that sentencing Mr. Karatz to home detention in his “24-room Bel-Air mansion” would suggest “a two-tiered criminal justice system, one for the affluent … and a second for ordinary citizens.” “To promote respect for the law, the public must be assured that a wealthy, well-connected individual, regardless of his station, array of prominent friends and associates, history of private success or acts of public largess, will be subject to the same standard of criminal justice as those less fortunate,” prosecutors wrote.
Judge Wright said he was disturbed by “the inflammatory language in the government’s report that if this court did not impose a harsh sentence that it was evidence of a two-tiered justice system, one of the rich and one for everyone else.” He told the prosecutors, “To invite public ridicule and scorn on this institution, I think, is unspeakable.” “I don’t care, sir, whether or not you have a pot to piss in,” Judge Wright said to Mr. Karatz. “What you get here is fairness.”