L.A. Fraud Case Raises Issue Of “Two-Tiered” Justice System


Bruce Karatz, former chief executive of KB Home, will be sentenced in Los Angeles tomorrow for fraud and making false statements in an options-backdating scandal, says the Wall Street Journal. Karatz, who the government alleges tried to make nearly $11 million from backdating, denies wrongdoing and plans to appeal his conviction. The U.S. Probation Office wants Judge Otis Wright to give Karatz probation and eight months of home confinement. Prosecutors seek an 6.5-year prison sentence, arguing that confining Karatz in his “24-room Bel-Air mansion,” suggests “a two-tiered criminal justice system, one for the affluent [] and a second for ordinary citizens.”

The key issue revolves around how much financial loss KB Home and its shareholders suffered. Probation officials believe there was no loss. Prosecutors argue that the $11 million — gains Karatz made or hoped to make at KB Home’s expense — qualifies him for a multiyear prison term. The dispute is part of a debate over whether sentencing for white-collar crimes relies too heavily on calculations of financial losses to fraud victims. Under advisory sentencing guidelines, experts say, an executive convicted of a crime like securities fraud could be sentenced to life imprisonment on a first offense. Loss calculations have “become the single most significant driving factor” in white-collar sentencing, says James Felman of Tampa, co-chairman of the American Bar Association’s committee on sentencing. The ABA is looking at recommending guideline revisions to lessen the influence of such calculations.

Comments are closed.