Homestore Ex-Employee Expected to Plead Guilty
A fourth former employee of Homestore Inc. is expected to plead guilty today for playing a role in a scheme that inflated revenue at the Westlake Village Internet real estate company through “round-trip” transactions with other companies, people familiar with the case said Tuesday.
The employee, Jeff Kalina, was a lower-level worker in Homestore’s business development department, which was headed by Peter Tafeen, an executive whose deals with companies such as AOL Time Warner Inc. and real estate franchise giant Cendant Corp. have come under federal scrutiny.
In agreements expected to be announced today, Kalina will plead guilty to a single criminal count of securities fraud and settle civil insider trading charges brought by the Securities and Exchange Commission, according to his lawyer and others. Kalina will repay, with interest, his $69,000 profit from selling Homestore stock at a time he knew of the schemes that allowed the company to record as revenue millions of dollars of its own funds.
“He regrets his involvement, he regrets his trading activity and he will continue to tell the truth about what happened at Homestore,” said Kalina’s attorney, David Scheper.
Kalina has cooperated with company and government investigations since Homestore’s board replaced its top management in 2001, citing improper accounting, Scheper said. He was let go in August when it became apparent he was a target in the criminal probe.
Assistant U.S. Atty. Douglas Fuchs declined to comment Tuesday on Kalina’s plea bargain. In an interview last week, Fuchs said the investigation is continuing and reiterated that, as described in the charges filed so far, prosecutors believe the fraud “stretches to the highest levels of Homestore.”
To prove a case against Tafeen, a former executive vice president at Homestore, and against company founder and former Chief Executive Stuart Wolff, prosecutors would have to show that the executives knew the revenue was being improperly recorded. Attorneys for the two have portrayed them as entrepreneurs, not accountants, who didn’t intend to break any laws.
Brian Hennigan, an attorney for Tafeen, said he has discussed the investigation with prosecutors. At this point, his client is inclined to go to trial -- despite the possibility of a 30-years-to-life sentence -- rather than strike a plea bargain, Hennigan said.
The Justice Department and the SEC also have been talking to Homestore’s business partners, including New York-based Cendant.
“Cendant is cooperating with such government agencies to assist them in their investigations of Homestore,” the company said Tuesday in a statement. It said it wasn’t aware of any attempt to make Cendant a target of the investigation.
People familiar with the case said prosecutors have sought to question several Cendant executives, who have been searching for lawyers in Los Angeles to represent them.
Under federal sentencing guidelines, Kalina could be sent to federal prison for 12 to 18 months for the insider trading violation. However, if prosecutors describe his cooperation as particularly useful, a judge could sentence him to home confinement or probation, according to those involved in the case.
Another player in the Home- store drama, John DeSimone, has pleaded guilty to a similar insider trading charge and is cooperating with federal criminal and civil investigations in hopes of receiving a short sentence or probation. The company’s former chief financial officer, Joseph Shew, and chief operating officer, John Giesecke, have struck cooperation deals that could carry more serious sentences of as long as five years and 10 years, respectively, for fraud and conspiracy.
Separately Tuesday, Homestore said it had added a sixth outside director to its seven-member board: Bruce Willison, a veteran banker who since 1999 has been dean of the Anderson business school at UCLA.
