LOS ANGELES — The criminal trial against former Homestore CEO Stuart Wolff, who faces criminal allegations of securities fraud and illegal insider trading of Homestore’s stock, continued here Monday morning with the testimony of Joseph Shew, who was Homestore’s CFO during part of Wolff’s tenure as chief executive.

Shew answered questions for several hours about multimillion-dollar transactions that Homestore set up with AOL, Cendant Corp. and other companies as part of an accounting fraud that was designed to pump up Homestore’s quarterly advertising revenue during the dot-com heydays five years ago.

“We were buying our own ads, and we were losing money to do it,” Shew testified. “It was not a sustainable advertising model.”

The witness, a young sandy-haired man, who was wearing wire-framed glasses, a light gray suit, cream-colored shirt and diamond-pattern tie, testified that the company had hidden the substance of the “giveback” part of these deals from its auditors.

“Of all the bad deals we did, the worst part was lying to PriceWaterhouseCoopers. I’d worked with (one of the auditors), and I never felt comfortable looking him in the eye and lying or sending (John) DeSimone or (Jeffrey) Kalina to do my dirty work of lying to PriceWaterhouseCoopers as well,” he testified.

Shew plead guilty nearly four years ago to securities fraud and wire fraud charges and agreed to repay more than $1 million of ill-gotten gains. He is one of nearly a dozen former Homestore employees, including both DeSimone, Homestore’s former VP of transactions, and Kalina, the company’s former finance department manager, who have plead guilty to various U.S. Justice Department criminal charges and settled U.S. Securities and Exchange Commission allegations.

Throughout his testimony, Shew called attention to Wolff’s alleged participation, along with Peter Tafeen, Homestore’s former VP of business development, and himself, in meetings and conference calls during which the fraudulent deals allegedly were discussed in Wolff’s presence and allegedly without his objections. Tafeen, who plead guilty to one count of securities fraud in March, hasn’t yet testified in the trial.

The sober proceedings reached a climax when a miserable-looking Shew recalled his own resignation from Homestore in December 2001, months after he’d privately told Wolff he wanted to leave the company and at a time when four or five other senior executives also wanted to exit the company, he testified. His resignation came two weeks before the company announced a massive earnings restatement.

Shew said his resignation followed two rounds of internal investigations conducted by outside legal counsel. He admitted that he lied during those investigations because he wanted to protect himself, DeSimone and Kalina. At that time, he said, he still hoped the transactions would be “swept under the carpet.”

The prosecutor, Michael R. Wilner, an assistant U.S. attorney, asked Shew to characterize Wolff’s intelligence, which was once nearly legendary in the real estate industry.

“Stuart Wolff is the smartest man I’ve ever met…His ability to think through complex strategies, issues and transactions is second to none,” Shew said.

The remark and Shew’s further statement that Wolff wasn’t a comfortable public speaker seemed to hearten the defendant’s wife, who again was seated in the courtroom for most of the day’s testimony. The handful of other observers included Shew’s attorney and a paralegal from a law firm that represents Homestore, which recently changed its name to Move Inc.

Wolff sat through his former CFO’s testimony with a blank expression on his face and his hands folded beneath the table. His attorneys conferred, objected and took copious notes throughout the testimony.

The prosecution played snippets of two recorded telephone calls during which Wolff and Shew tried to reassure Wall Street analysts about Homestore’s advertising revenues. Wolff and his attorneys appeared to be excited about something they read in the transcripts, which were handed out to the attorneys and jurors. Wolff smiled, and he and his attorneys took more notes at this point in the trial.

The jurors, attired in colorful casual clothing, contrasted sharply with the dark suit-clad defendant, attorneys and FBI agent in Judge Percy Anderson’s courtroom. The jurors appeared alternately bored and attentive and seemed to perk up a bit whenever the air-conditioning system kicked on in the rather stuffy courtroom. Outside, the city was pelted with a spring rain.

During a short break in the trial, the judge announced that one of the jurors had requested to be excused if the trial wouldn’t be completed prior to July 5, when he has planned to begin a family vacation. The trial, which was expected to last two or three months, was delayed earlier this month because one of the jurors had contracted chickenpox.

Marcie Geffner is a real estate reporter in Los Angeles.

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