Test case looms on backdating.

• Author: Marshall, Jeffrey
• Position: LITIGATION

An important legal precedent could be looming in California, where big builder KB Home was recently slapped with a class-action lawsuit. Employees there allege that when top executives allegedly backdated stock options illegally and secretly, they breached their fiduciary responsibility under the Employee Retirement Income Security Act (ERISA).

"If this case survives summary judgment, plaintiff's attorneys will be emboldened and bring more employees onto the class-action backdating bandwagon," predicts John Gamble, an Atlanta-based partner with Fisher & Phillips, a labor and employment law firm.

Since ERISA was amended after the Enron scandal to increase the severity of penalties, individuals who are caught willfully violating ERISA face 10 years in prison and fines up to $100,000.

Gamble says the suit names a number of individuals in KB Home management and on the board of directors who...