Ex-Executives of Homestore Enter Guilty Pleas
Two former Homestore Inc. executives pleaded guilty Monday to roles in a conspiracy to inflate revenue at the Internet real estate company, a scheme that enabled the company to satisfy Wall Street that it was growing robustly, allowing the executives and others to exercise millions of dollars’ worth of stock options.
John Giesecke Jr. and Joseph J. Shew, chief operating officer and chief financial officer, respectively, of Westlake Village-based Homestore when the scheme unfolded in 2001, were among seven top executives who quit or were fired after the plot came to light late last year.
The pair, who say they weren’t the instigators of the conspiracy, assured U.S. District Judge Percy Anderson repeatedly that they were voluntarily giving up their rights to trial.
Shew was the first to cooperate with prosecutors and the Securities and Exchange Commission when the scheme began unraveling last November, attorneys said. Within days, he was joined by Giesecke and another former Homestore finance executive, John DeSimone, who is scheduled to enter his guilty plea next week.
Assistant U.S. Atty. Michael Wilner told Anderson the conspiracy involved additional participants at Homestore, the Web’s leading real estate listings site, and other companies.
People involved in the investigation have said the probe is focused on former Homestore Chief Executive Stuart Wolff, former Executive Vice President Peter Tafeen and a number of partners that generated revenue for the company, including AOL Time Warner Inc., one of its two major partners.
Lawyers for Tafeen and Wolff have acknowledged that their clients are under investigation but denied wrongdoing; AOL, facing probes into its own accounting by the SEC and the U.S. attorney in Alexandria, Va., has denied systematic wrongdoing but acknowledged that a former manager forced out last year might have participated in the plot.The federal criminal case accuses Homestore of purchasing high-priced services from vendors on the unspoken condition that they spend most of the money on ads at AOL, which in turn bought ads on Homestore sites.
The scheme allowed Homestore “to recognize its own cash as revenue” in violation of accounting standards, Assistant U.S. Atty. Douglas Fuchs said.
Homestore’s other major partner was Cendant Corp., whose chief executive, Henry Silverman, told analysts last month that his company is not a target of the Homestore investigation.
However, sources close to the investigation said Monday the government is scrutinizing New York-based Cendant, whose brands include Century 21, Coldwell Banker and ERA. Cendant executives couldn’t be reached for comment.
Giesecke, 42, of Malibu, faces a 10-year prison sentence and $500,000 fine under the terms of his agreement to plead guilty to fraud and conspiracy. Shew, 37, of West Chester, Pa., could be sentenced to five years and a $250,000 fine for conspiracy.
