U.S. Department of Justice|
Debra W. Yang
United States Attorney
Central District of California
United States Courthouse
312 North Spring Street
Los Angeles, California 90012
FOR IMMEDIATE RELEASE
April 28, 2005
For Information, Contact Public Affairs|
Thom Mrozek (213) 894-6947
Los Angeles, CA - Two former top officials, including the ex-CEO, of Homestore.com, Inc. have been charged in both criminal and civil cases that allege they directed and participated in a scheme to inflate the company's on-line advertising revenues through a series of fraudulent transactions in 2001.
Stuart Wolff, the former chief executive officer and chairman of the board of Homestore.com, and Peter Tafeen, the company's former executive vice president of business development, were named in an indictment returned yesterday by a federal grand jury in Los Angeles. In addition to the criminal charges, the United States Securities and Exchange Commission filed a civil lawsuit in federal district court against the two men.
With the filing of its case today, the SEC has now sued a total of 16 individuals for their roles in the Homestore scheme. Wolff and Tafeen have become the tenth and eleventh defendants to face criminal charges in relation to the scheme. All of the defendants except Wolff and Tafeen have settled the SEC charges, pleaded guilty to the criminal charges where applicable and agreed to cooperate with the government.
United States Attorney Debra W. Yang, who is a member of the President's Corporate Fraud Task Force, said, "The criminal charges against the former top two executives at Homestore demonstrate that the Justice Department will pursue corruption to the highest level of the corporate hierarchy. The investigation, which has now reached the company's CEO, went up the ladder to expose coordinated corruption across a broad spectrum. We have now criminally charged 11 defendants in this case, bringing to justice all of the parties involved in the scheme to defraud Homestore shareholders."
Randall R. Lee, Director of the SEC's Pacific Regional Office, stated: "Although the fraudulent scheme at Homestore was pervasive and widespread, it could not have occurred without the direction, participation, and complicity of Homestore's highest management. In their drive to beat Wall Street analysts' expectations at any cost, Homestore's top executives betrayed the trust of the investing public and must be held accountable."
Richard Garcia, Assistant Director in Charge of the Los Angeles Field Office of the F.B.I., stated: "The criminal charges brought today against these former corporate executives demonstrate the FBI's continuing commitment to investigate fraud schemes which threaten the public's confidence in our country's financial markets."
The civil lawsuit and criminal indictment allege that Tafeen orchestrated the fraud scheme, and that Wolff and Tafeen participated in executing fraudulent "round-trip" transactions to artificially inflate Homestore's revenue in order to exceed Wall Street analysts' expectations. Wolff and Tafeen allegedly knew that the transactions fraudulently generated a circular flow of money in which Homestore recognized its own cash as revenue and concealed the scheme from the company's auditors. The civil and criminal cases also allege that Wolff misled investors and analysts about Homestore's true financial condition and used the September 11, 2001 terrorist attacks as a pretense for Homestore's financial decline. Wolff and Tafeen both exercised stock options during the course of the fraudulent scheme, obtaining millions of dollars in proceeds.
Homestore.com is now known as Homestore, Inc., a Westlake Village, California, company that provides real estate listings and related services on the Internet.
Wolff, 42, of Westlake Village, California, was Homestore's CEO and chairman of the board from 1997 until he resigned in January 2002 during an internal investigation into the fraudulent scheme.
Tafeen 36, of Parkland, Florida, was the executive vice president of business development at Homestore from 1997 until November 2001. During his tenure, Tafeen reported directly to Wolff.
The grand jury indictment charges Wolff and Tafeen with conspiracy to violate the securities laws, insider trading, creating false books and records and lying to Homestore's accountants. Each defendant is charged with 19 counts, and each defendant faces a maximum possible sentence of 185 years in federal prison.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.
The SEC charged Wolff and Tafeen variously with violating or aiding and abetting violations of numerous provisions of the federal securities laws, including antifraud, reporting, record-keeping, internal controls, and lying to the auditors provisions. The SEC is seeking permanent injunctions, penalties, disgorgement of ill-gotten gains and prejudgment interest, and an order permanently barring Wolff and Tafeen from serving as an officer or director of a public company.
Previously in this investigation, nine defendants have pleaded guilty to criminal charges related to the fraudulent "round-trip" transactions, and two defendants have admitted in plea agreements that Homestore shareholders suffered losses of at least $100 million when the company's stock price dropped precipitously in 2002 when news of an investigation into accounting irregularities became public.
The criminal case is the product of an investigation by the Federal Bureau of Investigation. The civil case was investigated by the United States Securities and Exchange Commission.
Release No. 05-065
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