Kb homes and backdating

Law360, New York (December 5, 2011, PM EST) -- The California Supreme Court has ordered the disbarment of former KB Home Inc.

CEO Bruce Karatz over his 2010 conviction for covering up a stock options backdating scheme, the court disclosed Thursday.

The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.

This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.

The first was in 1995, when a professor at New York University reviewed option-grant data that the SEC forced companies to publish.

The study, published in 1997, identified a strange pattern of extremely profitable option grants, seemingly perfectly timed to coincide with dates on which the shares were trading at a low.

(See also: .) As a result, firms restated earnings, fines were paid and executives lost their jobs—and their credibility.

Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.The amendment labeled executive compensation in excess of

Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.

The amendment labeled executive compensation in excess of $1 million as unreasonable and thus not eligible to be taken as a deduction on the firm's taxes.

Performance-based compensation, on the other hand, was deductible.

From a consumer's perspective, customers rely on companies to provide goods and services.

When those firms have no ethical boundaries, their wares become suspect.

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Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.The amendment labeled executive compensation in excess of $1 million as unreasonable and thus not eligible to be taken as a deduction on the firm's taxes.Performance-based compensation, on the other hand, was deductible.From a consumer's perspective, customers rely on companies to provide goods and services.When those firms have no ethical boundaries, their wares become suspect.

million as unreasonable and thus not eligible to be taken as a deduction on the firm's taxes.Performance-based compensation, on the other hand, was deductible.From a consumer's perspective, customers rely on companies to provide goods and services.When those firms have no ethical boundaries, their wares become suspect.

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