Ex-Homestore Execs To Plead GuiltyMar 25, 2002 | AP
Three former executives of the nation's largest Internet-based provider of residential real estate listings have agreed to plead guilty to fraudulently inflating company earnings, law enforcement officials said Wednesday.
Two former executives of Homestore.com Inc., chief operating officer John Giesecke and chief financial officer Joseph Shew — agreed to plead guilty to conspiracy to commit securities fraud. Giesecke also agreed to plead guilty to wire fraud and former vice president John Desimone will plead guilty to insider trading charges, the sources said, speaking on condition of anonymity.
All three were expected to enter the pleas in U.S. District Court in Los Angeles on Wednesday.
Giesecke's lawyer, Jan Handzlik, confirmed that his client will plead guilty to the charges.
Giesecke is "deeply sorry for his conduct and he intends to fully cooperate with the government," Handzlik said. The lawyer said no plea agreement has been reached, but his client hopes his cooperation will lead to favorable consideration when he is sentenced.
The case could have implications for the government's continuing investigation of accounting practices at AOL Time Warner Inc.'s America Online unit.
Homestore, based in Westlake Village, Calif., ran a network of realty-related Web sites including Realtor.com, the official Web site of the National Association of Realtors. Earlier this year, Homestore said it had overstated revenue in the first three quarters of 2001 by as much as $95 million.
The company has changed its management team and the firm is cooperating with the investigation, the government sources said. Giesecke, Shew and Desimone also have agreed to cooperate with the investigation.
Giesecke and Shew, together with other high-ranking Homestore officers, were part of a scheme from March to December 2001 to defraud investors and the Securities and Exchange Commission, by manipulating Homestore's reported revenues to make them appear greater than they actually were, the sources said.
Homestore entered into an agreement with AOL Time Warner's America Online unit in which Homestore agreed to refer companies to AOL for purchase of online advertising, the sources said. AOL then agreed to purchase online advertising from Homestore, dependent on the amount of advertising purchased by Homestore's referrals.
The government said that Homestore paid about $48.9 million to companies in 16 transactions. Those companies then paid some $45.1 million to AOL for online ads.
Homestore recognized about $36.7 million in revenue from the scheme and Homestore included that in its financial statements.
The government sources said the scheme was carried out by causing fraudulent entries to be made in the company's records, misleading outside auditors. In addition, the company filed false financial statements with the SEC.
Giesecke, Shew and Desimone, along with other high-ranking officers, exercised stock options, the sources said.
Conspiracy to commit securities fraud and mail fraud each carry a prison term of up to five years, while insider trading is punishable by up to 10 years.
The SEC also has filed a civil securities fraud action against the three.