The Financial Times reported today that the SEC is nearing the completion of a formula to penalize companies for backdating options. While the commissioners remain divided on the issue, the consensus is that the penalty should be related to how much the company benefitted financially from the backdating.

One area of debate is whether companies should be fined large amounts, which would directly harm the shareholders that the SEC is seeking to protect. While there is universal agreement that executives should be fined personally, this is a trickier issue. Fines collected would go into a "fair fund" to be redistributed to shareholders who were harmed. But as anyone who has ever received a payout in a lawsuit related to corporate malpractice knows, legal fees etc. often eat up a substantial amount of the damages.

My feeling is that fining executives enormous sums of money is the best way to combat this.

Options backdating scandals have felled many a tech CEO, and KB Home (NYSE:KBH) had the unlikely distinction of being an unlikely choice for an options backdating scandal. The company's CEO, Bruce Karatz, resigned today over stock options misdeeds. Jim Cramer (among others) didn't mourn him much, however, and said it's actually a good thing. Cramer says you have to go buy shares of KBH, because as the options scandal pressures a stock down, then it inches up, and then on the resolution of the scandal you must buy. With the CEO resigning, that is now out of the way.

Cramer said that even if you back-date options you have to think you are looking out favorably on the company down the road anyway. If a CEO was willing to take stock over cash then you should be inclined to take his lead. He thinks at 1.25 times book value that is a very cheap price. It has almost no debt. It could be a takeover target because it is so cheap. Cramer thinks private equity buyers could do it, or even a Lennar Corporation (NYSE:LEN).

KBH is widely and wrongly perceived as a California and Las Vegas homebuilder, but that isn't the whole truth, says Cramer. California is now 31% of sales and the company builds homes in 13 states. When California comes back, so will KBH. It also builds award-winning neighborhoods. He said he didn't like it when the shares were super-high, but now closer to lows he likes it.

At my alma mater, The Wharton School, white collar crime is taken seriously. After all, Wharton is famous for turning out such brilliant luminaries with questionable ethics (and, in many cases, stints in prison), such as Michael Milken Joseph Jett [Jett, it turns out, is not a Wharton grad and he disputes his involvement in the scandal that took down Kidder Peabody; he describes that in detail in comments below]. Business ethics is taught with a white-knuckled intensity that makes a student wonder where the dean lies on the scale between between concern and abject terror that more scandals will erupt.

Peace be with you, Dean Harker. Your graduates appear to have learned the difference between insider trading and friendly stock tips, fudging and felonies. Unfortunately, it seems that the vast majority of corporate America is ill-educated in the ways of the ethical standard. Because they're falling like so many bright orange oak leaves.

While we all wonder, will Steve Jobs be next?, we watch the mighty fall. George Samenuk (Brown University, political science) was quite the success story. He was a manager at IBM for years before taking over as Chairman and Chief Executive of McAfee, Inc. (NYSE:MFE). Today he quit over options backdating, while at the same time firing President Kevin Weiss (Princeton University, unspecified BA). Ouch! Double whammy.

While the boardroom at McAfee was all a-tizzy with pink slips and hot red faces, Shelby Bonnie (University of Virginia's famed Commerce School then Harvard Business School for MBA) at CNET Networks, Inc. (NASDAQ:CNET) was learning that his bio would momentarily be removed from the company's web site. He resigned his Chairman and CEO roles, with a bit of urging I'd imagine.

Notice something? All of these fine gentlemen have Ivy League educations. None of them, however, from Penn.

I guess the ethics education works! Ahem. Harvard? Princeton? Brown? UVa? Y'all may want to take a look at your coursework there. Or maybe just that sense of overarching fear might work. Or you could try the paddle!