What is it in the human being that makes cheating others so easy for some?
For those of us who have watched the embarrassing antics of the former leaders of Homestore who once swore they had nothing to do with the fraud that nearly destroyed the dotcom, the announcement that Peter Tafeen, Homestore's former executive vice president of business development, pleaded guilty to inflating the company's online advertising revenues through a series of fraudulent transactions in 2001 is no surprise.
According to reports, Tafeen pleaded guilty to one count of securities fraud in connection with a "round-trip" revenue scheme so that he faces only a maximum sentence of 10 years in federal prison, instead of the centuries of time his former boss Stuart Wolff faces. This is a sweet deal considering the millions he and others lost investors in the round trip scheme that included stating Homestore's cash as new revenues. When Tafeen was originally indicted in April, 2005, he and Wolff had 19 counts against them and were facing up to 185 years in prison.
All Tafeen has to do is testify against Wolff, who claimed that dishonest employees were responsible for Homestore's legal woes.
A total of 10 former Homestore employees have pleaded guilty to criminal charges related to the fraudulent "round-trip" transactions, says the Department of Justice. "Two of the defendants who have pleaded guilty admitted in court documents that Homestore shareholders suffered losses of at least $100 million when the company's stock price dropped precipitously in 2002 when news of an investigation into accounting irregularities became public. All 10 defendants, including Tafeen, are cooperating with the government in its ongoing investigation."
J. Stephen Tidwell, Assistant Director in Charge of the FBI in Los Angeles, stated: "Today's guilty plea is gratifying in that an individual in a position of authority, with influence over his subordinates, has taken responsibility for his role in orchestrating and implementing a serious fraud scheme."
In his plea agreement, Tafeen admitted to helping execute fraudulent “round-trip” transactions to artificially inflate Homestore's revenue in order to exceed Wall Street analysts' expectations. Tafeen knew that the transactions fraudulently generated a circular flow of money in which Homestore recognized its own cash as revenue and concealed the scheme from the company's auditors.
According to a statement of facts in his plea agreement, Tafeen admitted knowing that Wolff misled investors and analysts about Homestore's true financial condition and used the September 11, 2001 terrorist attacks as a pretense for Homestore's financial decline. Tafeen exercised stock options during the course of the fraudulent scheme, obtaining millions of dollars in proceeds.
Tafeen 36, of Parkland, Florida, was the executive vice president of business development at Homestore from 1997 until November 2001. During his tenure, Tafeen reported directly to Wolff.
Wolff, who was Homestore's chief executive officer, is scheduled to go to trial on March 28. Wolff is charged in an indictment with conspiracy to violate the securities laws, insider trading, creating false books and records, and lying to Homestore's accountants.
Both Wolff and Tafeen added insult to injury by getting the courts to strong-arm Homestore into paying their legal fees, although Homestore was able to negotiate with the defendants for a limited amount in exchange for not seeking repayment.
Tafeen pleaded guilty before United States District Judge Percy Anderson, who is scheduled to sentence the defendant on August 28.
The criminal case is the product of an investigation by the Federal Bureau of Investigation. A related civil case was investigated by the United States Securities and Exchange Commission.
