Depositions in Homestore Case to Proceed

A judge on Wednesday refused to derail a lawsuit filed by investors in Homestore Inc., chiding federal prosecutors for providing only the “vaguest outlines” of how the suit might jeopardize criminal cases against former employees and business partners of the online real-estate firm.

The civil lawsuit is important to thousands of investors who were harmed when Westlake Village-based Homestore disclosed in late 2001 that it had inflated its advertising revenue, U.S. District Judge Marsha Pechman said from her court in Seattle during a telephone conference with attorneys.

“To halt the process without any specifics would not be in the best interest of the public,” Pechman told the prosecutors, who had asked her to order a halt to the taking of sworn statements in the investors’ lawsuit.

Four former Homestore executives have pleaded guilty to criminal roles in the phony revenue scheme and have settled Securities and Exchange Commission civil charges. Government and defense sources, speaking on condition of anonymity, said Wednesday that three additional participants had agreed to plead guilty, with four others settling SEC charges. The new agreements were expected to be announced by Tuesday.

Prosecutors argued that taking witnesses’ depositions in the investors’ suit would give potential criminal defendants an opportunity to elicit testimony they otherwise would be unable to obtain.

Assistant U.S. Atty. Michael Wilner also argued that former Homestore executives who have struck plea bargains in the case might assert their 5th Amendment rights and not give depositions until after they were sentenced.

But Pechman noted that the cooperating witnesses would be motivated to help the civil case to win reductions in their sentences. She said she would need more details about the government’s case before putting the depositions on hold, despite prosecutors’ assertions that additional plea agreements and indictments were expected.

“The government has supplied me to this date only the vaguest outlines,” she said.

Participants in the telephone conference included attorneys for Stuart Wolff, Homestore’s founder, who quit as the scandal unfolded, and Peter Tafeen, the company’s former business development whiz, whose department crafted the three-party transactions that allegedly allowed Homestore to book its own funds as revenue.

Wolff’s attorney, Howard Privette, said he would not object to the depositions’ being put on hold. Tafeen’s lawyer, Robert Friese, said his concern was chiefly in getting the company to provide access to documents that might exonerate his client. Both Wolff and Tafeen are considered potential targets of the investigation. Neither of their lawyers returned phone calls after the hearing.

Also on the line were two federal prosecutors in Alexandria, Va., where the government’s filing said a related criminal investigation is underway into AOL Time Warner Inc., the giant media company whose America Online unit was a key business partner of Homestore.

The Virginia prosecutors declined to discuss their investigation, and AOL’s lawyer did not return a call.