Prepared AG Ashcroft Remarks Announcing Criminal Charges
Against Homestore,COM. INC.
September 25, 2002
(Note: The Attorney General Often Deviates From Prepared Remarks)
Today, in the Central District of California, three former executives of Homestore.com, the largest internet-based provider of residential real estate listings, were charged with fraudulently inflating the companys revenues.
The companys former Chief Operating Officer, John Giesecke, was charged with conspiracy to commit securities fraud and wire fraud. The companys former Chief Financial Officer, Joseph Shew, was charged with conspiracy to commit securities fraud. The former Vice President, John Desimone, was charged with one count of insider trading. In addition, the SEC has filed a civil securities fraud action against the defendants.
All three former executives have agreed to plead guilty to the charges and cooperate with the governments ongoing investigation. The defendants face a maximum sentence of five years in prison on the charge of conspiracy to commit securities fraud, five years on the charge of wire fraud, and ten years on the charge of insider trading. Two of the defendants will be sentenced under revised sentencing guidelines, which increased punishment for white collar offenses.
Todays charges are the latest in a sustained series of law enforcement actions taken under the coordination of the Presidents Corporate Fraud Task Force, aimed at prosecuting corporate law-breakers and protecting American investors. Our actions in this case in particular stand as a warning to corporate executives: the Department of Justice will pursue allegations of corporate fraud regardless of the size or the prominence of the company under scrutiny. And we will prosecute those individuals and companies that seek to take advantage of the information-technology boom in the economy to steal other peoples money. So whether you are an executive at a Fortune 100 firm or an internet start-up, if you victimize investors and employees, you will face investigation, prosecution and prison for your crimes.
The charges against the former Homestore executives allege that from about March 2001 to December 2001, John Giesecke and Joseph Shew, together with high-ranking corporate officers at Homestore, participated in a scheme to defraud investors by making fraudulent entries in the companys books, misleading the companys outside auditors about the existence of the scheme, and filing false financial statements with the SEC. The charges stem from an illegal practice known as "round-tripping." By this scheme, the defendants admitted using Homestores own money to "buy" revenue by circulating funds out of Homestore through various middlemen and back into the company, which would then claim the funds as "new" revenue.
Simply put, the information charges that the defendants caused Homestore to inflate fraudulently the revenues it reported to the investing public. Through this scheme, Homestore recognized approximately 46.4 million dollars in bogus revenue on financial statements filed for the first three-quarters of Fiscal Year 2001. The defendants and other high-ranking corporate officers at Homestore admitted exercising stock options and selling stock in the company for their own benefit, despite knowing Homestores revenues and earnings were fraudulently overstated.
I want to thank United States Attorney Debra Yang, who is here with me today. U.S. Attorney Yang is a member of the Corporate Fraud Task Force, created in July by President Bush and headed by Deputy Attorney General Larry Thompson. Since its creation in July, the Corporate Fraud Task Force has had significant success in combating corporate crime. Within the past month alone, the United States Attorney's Office in Los Angeles has obtained securities fraud charges against chief executive officers, chief financial officers, or other top executives of such publicly traded companies as:
- eConnect, an e-business firm;
- NewCom, a computer peripherals manufacturer in Southern California; and
- Motor Car Parts & Accessories, an auto parts maker.
I congratulate U.S. Attorney Debra Yang and her staff for their leadership in returning integrity to American markets through justice for American investors. They have worked aggressively to root out corporate corruption wherever it is found. Each case they pursue is a step toward restoring honesty to American businesses and restoring trust to the American people, and I am grateful for their leadership and commitment. I also want to acknowledge the FBI agents who, as always, dedicated themselves to the pursuit of justice in this case.
I thank also Steve Cutler, Director of Enforcement of the SEC, who is here today. The SEC has moved swiftly and decisively to hold corrupt executives and corrupt companies accountable, and is an invaluable partner in our mission to protect the American workers and investors whose livelihood depends on the integrity of American businesses. Finally, I want to acknowledge Deputy Attorney General Larry Thompson, for his outstanding leadership of the Corporate Fraud Task Force.
The vast majority of American business leaders are responsible, honest men and women, and we appreciate the example of integrity they have set. Indeed, in this case, the Board of Directors and new management of Homestore are to be commended for fully cooperating with government investigators in their efforts to uncover and prosecute the illegal conduct of the defendants. The nature and extent of a companys cooperation is always a significant factor in deciding whether to charge the company itself.
Regrettably, as todays charges indicate, there are those who seek to deceive investors, to defraud share-holders, and to enrich themselves even as they impoverish the companies over which they preside. These individuals should take note: We will protect the integrity of American markets. We will enforce the laws that protect American investors. We will punish law-breakers at all companies, big or small, online or offline. We will use all our tools within the law to restore the publics trust in American markets.
Thank you very much.