If you follow stocks, analysts make enjoyable reading - if you don't bet the farm on what they have to say.

There were a lot of bulls that promoted Homestore until its house of cards collapsed, leaving the NASDAQ with no choice but to suspend trading while the company sorts out its accounting. But one Homestore cheerleader has admitted to being wrong for touting the stock.

In an unprecedented apology, market commentator James. J. Cramer, a free-lance writer for TheStreet.com, wrote a brief, to-the-point article outlining his sorrow at being "fooled by the folks at Homestore." Cramer writes, "All of us are susceptible to being fooled because we start with the preconception that managements are being honest. Had Homestore been honest, I would never have written about it positively."

Cramer is the founder and former columnist for SmartMoney magazine, a frequent contributor to Time magazine, and a former Goldman Sachs associate. He earned both an undergraduate and a law degree from Harvard, where he was president of The Harvard Crimson. If he can be "fooled," what hope is there for the average investor?

A class action suit, according to law firm Milberg Weiss.

Milberg Weiss, a 170-attorney firm specializing in actions on behalf of defrauded investors, consumers, and companies, as well as victims of World War II and other human rights violations, has filed a class action in the United States District Court for the Central District of California on behalf of purchasers of Homestore.com, Inc between July 20, 2000 and December 21, 2001.

According to the law firm, the complaint charges:

"Homestore and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Homestore provides an online marketplace for home and real estate-related information, products and services. On July 19, 2000 (after the close of the market), Homestore issued a release of its positive 2Q 00 results, causing Homestore's stock price to soar by more than $7 (or 25%) the following trading day. The complaint alleges that as part of their effort to boost the price of Homestore stock, defendants misrepresented Homestore's true prospects in an effort to conceal Homestore's improper acts until they were able to sell at least $16 million of their own Homestore stock. In order to overstate revenues and assets in 2Q 00, 3Q 00, 4Q 00, 1Q 01, 2Q 01 and 3Q 01, Homestore violated Generally Accepted Accounting Principles and SEC rules by engaging in improper "roundtrip'' transactions. These transactions had the effect of dramatically overstating revenues and assets. This came to an end (though unbeknownst to the public) in the Company's 3Q 01 as the Company's main roundtrip partner stopped doing these transactions with the Company.

Following the release of the Company's 3Q 01 results, the Company also slashed its revenue projections for 2002 from $563 million to $375-$425 million as a result of a material decline in its business with its main "roundtrip'' partner. On this news the Company's shares dropped by more than 50% the following trading day. Then, on December 21, 2001 (after the close of the market), the Company partially admitted that its past accounting for its prior results was inaccurate. On this news the Company's shares were halted and have not traded since."

Specifically named in the suit were Homestore, Inc., and Homestore officers CEO Stuart Wolff; Executive Vice President Peter Tafeen; and former CFO Joseph Shew, who recently resigned.

Not named in the suit were the analysts and underwriters who promoted the stock to investors via market commentators like Cramer.

"I took too many people's word - Morgan Stanley, Goldman Sachs, Kleiner Perkins," says Cramer. "The top research houses loved Homestore, and they all said it was a great buy. They wore me down into looking at it, and I thought this could be an eBay or a Monster.com."

What made Cramer go against his own instincts? "I was told that it would be taken over by Cendant, and that they would have a monopoly on classifieds the way eBay did on garage sales, and the way that HotJobs and Monster do for want ads," says Cramer. "When they did accounting shenanigans, its hard to detect. I've had people call me from Homestore and tell me that they didn't know either - they are just as shocked as I am."

Cramer explains that it isn't typical of analysts and market commentators to go outside of industry investment sources for information. They tend to rely on published reports, but there lies danger. Missing from the reports could be vertical-specific information - like how fast and how well customers are adopting the company's products, which is critical for electronic-related goods and services. Time is also a problem. In order to find reliable sources of information outside of analysts reports, commentators would have to operate as industry insiders - not a practical solution while covering hundreds of verticals annually.

"Before I write that I like a stock, I do homework. I read all the published reports," says Cramer. "This stock was pushed like it was the greatest thing since sliced bread. What I learned is that they didn't do due diligence. Goldman Sachs' Anthony Noto was saying at $20, this was your last chance to get in. Morgan Stanley was saying the same thing, but I didn't extend myself beyond the published analysts' reports. If they had and I had, it would have red-flagged this company. I would have recognized that Homestore was coming in against an entrenched industry."

Hindsight is always 20-20, so what's the morality tale here? "I wish that I had talked to real estate agents in the markets where Homestore said they were doing great," laments Cramer. "I should have been more skeptical of the analysts reports, and there were a lot of red flags. I just didn't read them. If I had, I would have made a more informed decision instead of taking the word of analysts who had an investment relationship with the company."

"I'm a one-man show, so I've got to be careful," he says. "People pay attention to what analysts have to say. They should have done more work, and I should have done more work."