There's been a conviction in Federal court against former Homestore CEO and chairman Stuart Wolff. But he and his former executive vice president of business development, Peter Tafeen, who sang like a canary in court, still have more music to face.

In May 2005, Wolff and Tafeen's legal troubles came home to roost when they were "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," said the Securities and Exchange Commission in a release. Following a federal grand jury indictment in Los Angeles when the Department of Justice filed a case against the two men, the SEC also brought civil charges. Then there's the shareholder lawsuit. All the actions will force the guilty parties to "disgorge" their ill-gotten gains to be returned to pay shareholders, fines and attorneys.

Wolff and Tafeen were the tenth and eleventh defendants to face criminal charges in relation to the scheme. Tafeen pled guilty to one count of securities fraud in connection with the revenue-recognition scheme, and cooperated with the government in its case against Wolff. As a result of his guilty plea, Tafeen faces a maximum sentence of 10 years in federal prison.

The remaining defendant in the case, Wolff defiantly and somewhat quixotically went to trial after numerous delays for conspiracy to violate the securities laws, insider trading, creating false books and records, and lying to Homestore's accountants. Charged with 18 counts, Wolff faced a maximum possible sentence of 185 years in federal prison.

His trial began March 28, and following some delays, concluded last week. The government called 19 witnesses, including former honchos Tafeen, former COO John Giesecke and former CFO Joe Shew, while the defense called 13. The testimony of these three men, along with the mounds of other evidence, were devastating to Wolff, particularly from Tafeen who was the closest officer to Wolff and had a close level of contact.

What's interesting is that the jury took less than a day to deliberate after a two and a half month trial filled with mind-numbing numbers, convoluted defenses, and more white collar guilt than a decent person can imagine. But unlike the Enron juries, this jury came back with a clean sweep -- guilty on all counts.

Eighteen for eighteen; that's a remarkable achievement for the Department of Justice and prosecuting attorney Doug Fuchs.

"The Court commented in remanding Wolff that the evidence was overwhelming," says Fuchs. "I think it was due to the entirety of the case. Several people commented on the overwhelming nature of the evidence."

One question remains, what was Wolff thinking? Surely he knew from the indictments and the 10 other defendants who pled guilty that he would be going down. Now, instead of a possible 10 years, like Tafeen is likely to serve, Wolff is in jail, awaiting sentencing in September (the 11th, to be exact) that could total as much as a century and a half.

Pretty stupid trade, pardon the pun.

Says Fuchs, "He's facing considerable jail time as he was convicted on all 18 counts. The judge will consult the sentencing guidelines, which may call for a sentence of 20 to 30 years. It's up to the judge whether he follows the guidelines or not, but based on his reaction and some of his comments, he will impose a severe sentence."

Fuchs concedes that Tafeen was wise to plead guilty and cut the best deal possible. "He was well-served by his lawyers," comments Fuchs.

The two men's goose is cooked financially, too.

According to Fuchs, the feds moved to stay the civil class action suit against the two men and the SEC action, pending resolution of criminal case. "They will move forward, and in the case of the SEC, they will move for summary judgment in federal district court, and if they prevail, Wolff will have to repay a lot of money. Tafeen worked out a settlement with the SEC and will disgorge ill gotten gains and pay civil penalties. The disgorgement will go to pay former shareholders. It's all part of a big pool that the government has been able to extract and the lawyers have extracted so it's getting close to $100,000,000."

Peter and the Wolff could end up with nothing.

And what have the American people gained? Will this case be a lesson to other greedy CEOs and their henchmen?

"I don't think this has gotten the publicity it could have, but there has been some good press," says Fuchs. "I think it is the totality of all these cases and maintaining a consistent effort to convince corporate executives that they have to take into account the duty of trust to the shareholder."

Published: June 27, 2006

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