Saturday, June 24, 2006
The former CEO of Homestore.com was convicted, following a jury trial, of the crimes of "conspiracy, five counts of insider trading, three counts of filing false reports with the Securities and Exchange Commission, five counts of falsifying corporate records and four counts of lying to company auditors." (See Press Release here of USA Central District of California). The defense argued that CEO Stuart Wolff was not aware of improper deals. (see here) The ignorant CEO defense, as has been seen in some recent cases, was not successful here. The defense intends to appeal.
According to the USA's press release -
"Wolff and the other Homestore employees, some of whom cooperated and testified against Wolff as government witnesses, participated in a scheme to execute fraudulent "round-trip" transactions to artificially inflate Homestore's revenue in order to exceed Wall Street analysts' expectations. The evidence presented during the trial showed that Wolff knew that the transactions fraudulently generated a circular flow of money in which Homestore recognized its own cash as revenue and that Wolff participated in concealing the scheme from the company's auditors. 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. Wolff exercised stock options during the course of the fraudulent scheme, obtaining millions of dollars in proceeds, which formed the basis for the insider trading counts."
The sentencing is set for September 11th, and it sounds like the government will be asking the court for a hefty prison sentence. In their press release they state that " Homestore shareholders suffered losses of at least $100 million. . . " An interested question at sentencing will be whether outside sources caused these losses.