Wall Street Journal
By Ashby Jones
January 8, 2010

In the Southland, it’s become as trendy as a lunch at The Ivy*: Backdating defendants crying foul over alleged prosecuctorial misdeeds.

Recently, the foil worked for the Broadcom Henrys — Samueli and Nicholas. Federal judge Cormac Carney tossed their cases after allegations arose that prosecutors had tried to prevent defense witnesses from testifying. (For more on that, scroll down for an earlier post today on Nicholas.)

Now comes word, courtesy of the LA Times, that former KB Home head honcho Bruce Karatz (pictured) is making a similar argument, accusing federal prosecutors of manipulating witnesses in his upcoming option-backdating trial.

In a motion filed this week in federal court in Los Angeles, Karatz’s attorney, John Keker, said two former KB Home employees who once supported Karatz later changed their accounts after meeting with federal prosecutors and FBI agents. Keker cited the change as an indication of prosecutorial misconduct.

Karatz singled out two witnesses in the case who have both told prosecutors that they believe the company inappropriately backdated stock options, the motion said.

“Both firmly believed that the stock option grant practice was lawful and they were willing to say so,” Keker said in the motion filed Monday. “Once the prosecutors got ahold of them, that changed.”

Was Keker’s filing a coincidence — or possibly prompted, at least in part, by the recent string of government mess-ups? Keker cited the Broadcom case in his motion, asking federal judge Otis D. Wright to hold a hearing to determine whether “that same right has been deprived here.”

Wayne Gross, former chief of the U.S. attorney’s office in Santa Ana now with Greenberg Traurig in Irvine, Calif., told the LAT that defense lawyers have taken notice of the prevailing winds:

“What happened in Broadcom will cause defense lawyers to pursue these misconduct allegations because for the first time there’s a possibility such arguments will be heard and acted upon by judges,” he said. “Defense lawyers often assumed that coercive tactics by prosecutors and agents, though repugnant, would be overlooked by judges if ever brought to their attention. So defense lawyers let it go.”

Thom Mrozek, spokesman for the U.S. attorney’s office in Los Angeles, which is prosecuting the case, declined to comment. He said his office would file a response to the allegations in court.

The judge is scheduled to consider the defense request at a Feb. 8 hearing in Los Angeles.

Karatz, 64, is slated to stand trial Feb. 23 on 20 counts of fraud and making false statements related to an investigation of the company’s option grants. He has pleaded not guilty and denied any wrongdoing.

* LA-based LBers, let us know. Is The Ivy even remotely trendy anymore?