L.A's ‘Mini-Madoffs’ Face Federal Charges


Published March 10, 2009.
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A Jewish business executive in Los Angeles whose foundation mostly gave to Jewish causes is facing federal fraud charges.

The alleged manipulation by Bruce Karatz did not approach the scale or impact of Bernard Madoff’s alleged $50 billion Ponzi scheme, but further unsettled a Jewish community affected by its fallout.

Meanwhile, the Securities and Exchange Commission sued another Jewish business executive in Los Angeles, Bruce Friedman, over charges that he diverted investors’ money for personal luxuries and to his private foundation. Friedman also gave to Jewish causes but on a smaller scale than Karatz.

Karatz was indicted by a federal grand jury on 20 counts of mail, wire and securities fraud, and making false statements.

The Jewish Journal of Greater Los Angeles on its “Swindlers List” blog asked whether the two might qualify as “mini-Madoffs.”

Karatz, 63, served as chairman and chief executive of KB Home, one of the country’s largest home builders, from 1986 to 2006, when he resigned under fire. The indictment accuses Karatz, whose three-year compensation ending in 2005 exceeded $232 million, with orchestrating the backdating of stock options from 1999 to 2006 without reporting his actions to stockholders or paying taxes on the gain. If convicted on all counts, he faces sentences up to 415 years.

According to forms filed with the IRS for the year 2007, the most recent available, the Bruce Karatz Family Foundation had assets of $4.7 million and paid out $232,709 in grants. Most of the donations went to Jewish causes, with the largest, $50,000 each, going to the United Jewish Fund and the City of Hope Medical Center.

In a prepared statement, Karatz attorney John Keker said his client did nothing wrong and was being unfairly prosecuted.

Friedman, 59, is accused in a SEC lawsuit of using his two investment firms to bilk some 300 clients across the country, mostly senior citizens, of at least $17 million to support a luxurious lifestyle and high-profile philanthropies. He had pleaded no contest to a felony charge of grand theft in 1981 and was sentenced to 40 months in the California state prison.

Friedman allegedly raised $216 million from investors by promising them 9 percent to 12 percent returns on real estate investments and mortgage loans.

Most of his charitable donations aided children and young students, among them two rather modest gifts to Jewish charities. According to his foundation’s 2007 filing with the IRS, the Katz Jewish Community Center in Cherry Hill, N.J., received $15,000, and the Jewish Child Care Association of New York $10,000.

Friedman and his attorney have not commented on the charges.

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