2 March – LAWFUEL – The Law News Network – A former top official of Homestore.com, Inc. pleaded guilty this morning in connection with a fraudulent scheme to inflate the company’s on-line advertising revenues through a series of fraudulent transactions in 2001.
Peter Tafeen, the company’s former executive vice president of business development, pleaded guilty to one count of securities fraud in connection with a revenue-recognition scheme. As a result of his guilty plea, Tafeen faces a maximum sentence of 10 years in federal prison.
With today’s guilty plea, a total of 10 former Homestore employees have pleaded guilty to criminal charges related to the fraudulent “round-trip” transactions. Two of the defendants who have pleaded guilty admitted in court documents that Homestore shareholders suffered losses of at least $100 million when the company’s stock price dropped precipitously in 2002 when news of an investigation into accounting irregularities became public. All 10 defendants, including Tafeen, are cooperating with the government in its ongoing investigation.
“Every corporation has a responsibility to completely and accurately report its financial condition to its shareholders,” said United States Attorney Debra Wong Yang. “Every corporation and every executive – no matter how high up the chain of command – that violates this responsibility by cooking the books will be subject to aggressive action by the Justice Department.”
J. Stephen Tidwell, Assistant Director in Charge of the FBI in Los Angeles, stated: “Today’s guilty plea is gratifying in that an individual in a position of authority, with influence over his subordinates, has taken responsibility for his role in orchestrating and implementing a serious fraud scheme.”
The remaining defendant in the case, Stuart Wolff, who was Homestore’s chief executive officer, is scheduled to go to trial on March 28. Wolff is charged in an indictment with conspiracy to violate the securities laws, insider trading, creating false books and records, and lying to Homestore’s accountants. Wolff has been charged with 19 counts, and, if convicted, faces a maximum possible sentence of 185 years in federal prison.
In his plea agreement, Tafeen admitted to helping execute fraudulent “round-trip” transactions to artificially inflate Homestore’s revenue in order to exceed Wall Street analysts’ expectations. Tafeen knew that the transactions fraudulently generated a circular flow of money in which Homestore recognized its own cash as revenue and concealed the scheme from the company’s auditors. According to a statement of facts in his plea agreement, Tafeen admitted knowing that 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. Tafeen exercised stock options during the course of the fraudulent scheme, obtaining millions of dollars in proceeds.
Tafeen 36, of Parkland, Florida, was the executive vice president of business development at Homestore from 1997 until November 2001. During his tenure, Tafeen reported directly to Wolff.
Tafeen pleaded guilty before United States District Judge Percy Anderson, who is scheduled to sentence the defendant on August 28.
Homestore.com, now known as Move, Inc., is a Westlake Village company that provides real estate listings and related services on the Internet.
The criminal case is the product of an investigation by the Federal Bureau of Investigation. A related civil case was investigated by the United States Securities and Exchange Commission.