The former chief executive officer and chairman of the board of Homestore.com has agreed to plead guilty to conspiring to commit securities fraud through a scheme that artificially inflated the company's online advertising revenue to make the publicly traded company appear to be more profitable to Wall Street analysts.
Stuart Wolff of Westlake Village, Calif., agreed to plead guilty to one count of conspiracy to commit securities fraud in a plea agreement filed in United States District Court in Los Angeles. Wolff is scheduled to appear in court on Jan. 12 to enter his plea pursuant. The plea agreement calls for a sentence of at least three years and up to the statutory maximum penalty of five years in federal prison.
In 2006, Wolff was convicted at trial of more than a dozen criminal charges and was sentenced to 15 years in federal prison. However, the U.S. 9th Circuit Court of Appeals reversed the conviction in January 2008, finding that the trial judge should have been recused from the trial. The case was remanded to the District Court and will be resolved if United States District Judge Gary A. Feess accepts the terms of the plea agreement.
Wolff is expected to become the twelfth individual convicted of federal charges related to the Homestore scheme. Wolff was Homestore's CEO and chairman from 1997 until he resigned in January 2002 during an internal investigation into the fraudulent scheme. The other 11 defendants convicted in this case previously received sentences ranging from probation to 27 months in custody.
Wolff and the other Homestore personnel prosecuted in this case participated in a scheme to execute fraudulent “round-trip” transactions to artificially inflate Homestore’s revenue in 2001. Those transactions fraudulently generated a circular flow of money in which Homestore recognized its own cash as revenue. In the plea agreement filed today, Wolff admitted that he entered into an agreement with other senior Homestore executives to record advertising revenue from those deals in order to make false statements to investors and federal regulators about Homestore’s true financial condition.
The plea agreement with Wolff follows a recent order by Judge Feess in which the court rejected a claim by Wolff that prosecutors in the case engaged in misconduct in the Homestore investigation. In response to a defense motion, Judge Feess issued an order that expressly stated “there is nothing in the record to suggest that the government has engaged in any improper conduct in connection with the investigation and prosecution of this case.”
Homestore shareholders suffered losses of at least $100 million when the company's stock price dropped precipitously in 2001 after news of an investigation into accounting irregularities became public.
Homestore.com is now known as Move Inc. and provides real estate listings and related services on the Internet. The company fully cooperated in the investigation, which was conducted by the Federal Bureau of Investigation.