Homestore execs plead guilty in L.A. court
By Gina Keating
LOS ANGELES, Oct 21 (Reuters) - Two former Homestore Inc. <HOMS.O> executives pleaded guilty on Monday in Los Angeles to fraudulently inflating the revenues of the Internet-based real estate listing company by $46.4 million in 2001.
Homestore's former chief operating officer, John Giesecke, and former chief financial officer, Joseph Shew, admitted to federal criminal charges of conspiracy to commit securities fraud. Giesecke also pleaded guilty to wire fraud.
Former vice president John DeSimone, who also cut a deal with federal prosecutors, was expected to enter his guilty plea to an insider trading charge next Monday in the same court, according to Thom Mrozek, a spokesman for the U.S. Attorney's Office.
As part of a plea agreement, the three are cooperating with the U.S. government's ongoing investigation into Homestore, the nation's largest Internet provider of real estate listings.
Shew and Giesecke were permanently banned from serving as officers or directors of a public company, while DeSimone was barred from those roles for 10 years.
The government has also filed a civil lawsuit against the three, who are due back in court on April 21 for sentencing. They are free on bail until their sentencing hearing.
Giesecke and Shew face up to five years in prison for the conspiracy charges; Shew, an additional five years on the mail fraud charge; and DeSimone, 10 years for insider trading.
The once high-flying Homestore, based in Westlake Village, Calif., appeared to be avoiding the dotcom meltdown until company officials announced late last year that they would have to restate earnings.
U.S. Attorney General John Ashcroft accused the company of puffing its revenues through an illegal practice known as "round tripping."
In the round-trip transactions, money flowed out of Homestore through middlemen, then came back to the company disguised as revenue, prosecutors said.
As an example, prosecutors cited Homestore's agreement with "a major media company" to refer advertisers to the media company to buy online advertising.
In return, the unnamed media company agreed to buy online advertising from Homestore in an amount determined by the advertising purchased by Homestore's referrals.
Homestore paid $49.8 million to the "middlemen" advertisers in 16 separate transactions in the first and second quarters of 2001, prosecutors said. The advertisers then paid $45.1 million to the media company to buy online ads. Homestore recognized about $36.7 million in bogus revenue from the media company's related purchase of advertising, prosecutors said.
Federal officials have declined to comment on whether AOL Time Warner Inc.'s America Online division was being investigated with the Homestore case.
In August, AOL Time Warner <AOL.N> said America Online may have improperly accounted for three advertising deals with revenue totaling $49 million.
10/21/02 19:40 ET |
