Former Homestore Inc. Chief Executive Stuart Wolff was convicted Thursday of overseeing a $67-million accounting fraud that helped make the online home-listing service one of the darlings of the dot-com era.
After a trial lasting nearly three months, a federal jury in Los Angeles deliberated for two days before finding Wolff guilty of all 18 counts of conspiracy, insider trading, making false regulatory filings and lying to auditors.
The verdicts bring an end to a high-profile criminal case that in some ways mirrored the Enron Corp. saga, complete with crooked corporate chieftains, dogged federal investigators and angry investors who lost hundreds of millions of dollars when sky-high stock prices were found to be based on fraudulent finances.
Homestore "was a very pervasive business scheme and we took many years and a lot of resources to root out this fraud," said Assistant U.S. Atty. Michael R. Wilner.
After the verdicts were announced, U.S. District Judge Percy Anderson revoked Wolff's bond and ordered him to jail, where he will await a Sept. 11 sentencing date.
"Obviously, we're extremely disappointed," defense attorney Lawrence Barcella said. "We continue to believe in his innocence … and we plan to appeal." Barcella also will ask that bail be set for Wolff, who could be sentenced to decades in prison.
Wolff, 43, is the 11th former Homestore executive to be convicted or plead guilty in connection with a scheme to inflate the Westlake Village-based company's revenue and prop up its stock price during the heady days of the Internet boom.
Homestore, which changed its name this year to Move Inc., was known as Homestore.com back in January 2000 when its stock hit an all-time high of $122.25, fueled by rising sales and the craze for Internet stocks. The company offered online home-sale listings and operated the website Realtor.com.
Investors were shaken in late 2001 when two top executives, including Peter Tafeen, Homestore's head of business development, abruptly resigned. In early 2002, the company restated its sales for 2000 and 2001 and Wolff quit amid an internal probe. By late 2002, the stock was trading for less than $1 a share.
According to prosecutors, Homestore inflated its revenue by engaging in three-way transactions with America Online Inc. and other companies that did business with the online real estate firm. Homestore "essentially transferred money to itself," the government contended, by overpaying vendors for products or services with the understanding that much of the cash would be funneled back to the company in the form of advertising purchases by intermediaries such as AOL.
During the trial, prosecutors maintained that Wolff was a hands-on CEO who was well aware of the scheme to inflate revenue.
The defense contended that Wolff wasn't involved in the fraud and that ex-employees were leveling accusations against their former boss in exchange for leniency. Perhaps the biggest blow came in March when Tafeen, who was indicted along with Wolff in 2005, pleaded guilty to one count of securities fraud and admitted to helping orchestrate the round-trip transactions.
The company, which cooperated with investigators and brought in new management after the scandal came to light, was never charged in the case. Its stock closed Thursday at $4.77, down 15 cents.
Although Thursday's verdicts bring the criminal case to a close, Wolff and others still face civil lawsuits filed by investors burned by the collapse of Homestore's stock.
In August 2003, the California State Teachers' Retirement System, the lead plaintiff in a shareholder lawsuit against Homestore and several of its former executives and business partners, reached a settlement with the company that was valued at $71 million. The company's auditor, PricewaterhouseCoopers, settled with investors last year.
Wolff and Tafeen are still defendants in the shareholder suit, as well as in a civil suit filed by the Securities and Exchange Commission.
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