'Mini-Madoffs' facing fraud charges in LA

By Tom Tugend, March 19, 2009
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Two Jewish business executives in Los Angeles are facing federal fraud charges, further unsettling a Jewish community affected by the fallout from Bernard Madoff’s $50 billion Ponzi scheme.

Both were prominent donors to Jewish and other charities.

Bruce Karatz, until recently one of the highest paid executives in the country, was indicted by a federal grand jury on 20 counts of mail, wire and securities fraud, and making false statements.

Bruce Friedman was sued by the Securities and Exchange Commission (SEC), which charged that he diverted investors’ money for personal luxuries and to his private foundation.

The Jewish Journal of Greater Los Angeles branded the accused men “mini-Madoffs”, although their alleged manipulations did not approach the scale or impact of the Madoff scandal.

Mr Karatz served as chairman and chief executive of KB Home, one of the US’s largest home builders, from 1986 to 2006, when he resigned under fire.

The indictment accuses Mr Karatz (whose three-year earnings, ending in 2005, exceeded $232 million) of 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, Mr Karatz, 63, faces sentences totalling up to 415 years.

Mr Karatz’s attorney, John Keker, said that his client did nothing wrong and was being unfairly prosecuted.

Mr Karatz had made generous donations to several Jewish charities including $50,000 to the United Jewish Fund and $6,000 to the Israel Air Force Centre.

Mr Friedman is accused in a SEC lawsuit of using his two investment firms to milk some 300 clients across the country, mostly senior citizens, of $17 million to support a luxurious lifestyle and high-profile philanthropies.

Mr Friedman allegedly raised $216 million from investors by promising them 9-12 per cent returns on real estate investments and mortgage loans.

It is not the first such scrape for Mr Friedman, 59, who pleaded no contest to a felony charge of grand theft in 1981 and was sentenced to 40 months in the California state prison. Mr Friedman has made no comment.

Last updated: 1:35pm, March 19 2009