It seems like the embarrassing legal problems Homestore has experienced drag on and on. Now the company is attempting to distance itself from its past by cutting a deal with "Peter and the Wolff" and changing its name.

Former CEO Stuart Wolff and VP of business development Peter Tafeen were indicted April 27, 2005 by a federal grand jury in Los Angeles on insider-trading charges. Each man faces a maximum possible sentence of 185 years in prison if found guilty of "entering into sham transactions" with companies such as AOL, which boosted Homestore's revenues in late 2000 and 2001.

The charges stem from the Department of Justice and the SEC.

Tafeen's attorney, Brian J. Hennigan of Irell & Manella in Los Angeles, told reporters at the time that his client intends to fight the charges. "He's not guilty, and we expect a jury to conclude that," Hennigan told reporters.

Wolff, according to his attorney Howard M. Privette, is another innocent CEO. Privette called the government's case "a prime example of the pendulum swinging too far in one direction in the post-Enron world." Privette argued that prosecutors "are focusing on a CEO who has no finance or accounting background and who trusted his accounting personnel to handle the company's books in an accurate and honest way."

The executives are accused of essentially buying revenues for Homestore. The company spent nearly $50 million buying software and other products from 16 different vendors in late 2000 and early 2001, and those vendors were required to spend most of the money on advertising with AOL, which then spent $40 million purchasing ads from Homestore, otherwise known as a "round trip" in advertising circles.

The scheme, when uncovered, sent Homestore's stock plummeting to depths from which it has never recovered. In addition, nine other executives have pled guilty to participating in the fraud, and are presumably willing to testify against their former bosses as part of their plea bargains.

Under new management since 2002, Homestore went through its own forgiveness by fire, agreeing to pay back millions of dollars to shareholders and issuing new stock to keep them happy, among other actions.

But some problems never end. Tafeen and Wolff popped back into Homestore's life, demanding that Homestore pay their attorney's fees.

The "new" Homestore didn't feel it should be responsible for Tafeen's legal fees, but it lost that battle when The Court of Chancery of the State of Delaware ruled against the dotcom. The court ruled "that Homestore must advance Tafeen all reasonable attorney's fees and costs in connection with the SEC and Department of Justice investigations and civil actions/lawsuits that have been filed against him for his purported role in a scheme to inflate Homestore's revenues.

Now, Tafeen and Homestore have reached a settlement, and it's a good bet Wolff will settle, too, as it looks likely that there will be lots of testimony against them - starting with Homestore.

Homestore was exonerated by the SEC in September 2002, most probably in exchange for information, and for "cooperating fully" as new management was commended by investigators at the time.

"In September 2002, both the USAO and the SEC announced that no charges would be brought against Homestore. The SEC stated at that time that 'it would not bring any enforcement action against Homestore because of its swift, extensive and extraordinary cooperation in the Commission's investigation.'"

That makes Homestore's need to move on interesting, as the company has also said it would change its name to Move.com.

"The settlement requires Homestore to reimburse Tafeen up to a maximum of $11.85 million, less $6.4 million already advanced through January 2006. An additional payment of approximately $5.5 million will be made in February into a trust account for future reimbursements to Tafeen, at which time Homestore will have no further liability to Tafeen. In exchange for this limit on Homestore's liability, Homestore has agreed to not seek repayment of the funds if it should subsequently be determined Tafeen is not entitled to indemnification. In the event Tafeen ultimately incurs less than $11.85 million, the remaining amount in trust will be returned to Homestore," explained the press release.

That's a good deal for Homestore if it's proven that Tafeen, and Wolff when the time comes, are not entitled to indemnification.

Published: February 23, 2006

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