SEC Investigates Company Building Houses

The Securities and Exchange Commission is currently investigating KB Home, a large company involved in building houses, due to the possibility that the company has violated certain disclosure and accounting policies.

The said investigation is actually the second time that the home builder attracted the attention of the commission. The first one is an investigation of Bruce Karatz, its ex-chief executive who is now awaiting trial for allegedly being involved in the manipulation of stock options.

Karatz actually resigned from his post in 2006 after being found guilty by the company of backdating his stock options, increasing his pay. He then agreed to pay over $7 million as part of the settlement that SEC offered in 2008. But despite this, he never admitted to actually committing the crime.

Meanwhile, another $550, 000 was paid to the SEC by KB Home’s ex-human resources head, Gary Ray who also settled charges by the SEC involving backdating of stock options.

The company building houses, based on Los Angeles, disclosed this most recent investigation of the commission as part of its regulatory filing and even released a statement to confirm the investigation. According to KB Home’s spokesperson, the commission did not specify what the investigation is all about which makes it hard for them to speculate.

On top of this, it was also noted that the company is being sued by an ex-employee. The lawsuit involved stock backdating of the company’s retirement plan, which resulted to the issuance of fake financial statements. The said lawsuit will go on trial on November 2010.

Lastly, the filing revealed the company’s acknowledgement of the struggles that the housing market. An oversupply of resale homes as well as newly-constructed properties was noted and blamed on soaring foreclosures and mortgage delinquencies.

It does not help that the competition in the market is quite tough, consumer confidence is at its lowest, mortgage lending guidelines are quite tight and unemployment rate has been rising steadily.

The company who has been building houses for many years now is still committed to being transparent with their business operations. In addition, they are confident that they have followed all accounting principles and policies as dictated by law. With the news of the investigation hitting the streets, company shares dropped to $15.17 or by 8 percent.

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