About a decade ago, a 33-year-old Stuart Wolff started fishing around doing due diligence on the Realtor Information Network on behalf of his employer, cable giant TCI, a prospective investor in the troubled National Association of Realtors online venture.

The low-key Princeton Ph.D. was working behind the scenes to put a deal together on RIN, which owned RealSelect Inc., a company formed to operate the Realtor.com home listings Web site.

Several months later in November 1996, RealSelect named Wolff chairman and CEO and the composed new leader with an engineering background fielded questions from suspicious reporters at a National Association of Realtors press conference. Suddenly a man no one had heard of a year earlier was instantly recognized as heading the NAR’s largest online venture.

But now after Thursday’s federal jury verdict in Los Angeles, Wolff forever will be remembered as the former Homestore CEO convicted on charges relating to a $67 million accounting fraud at the online property listings company. (RealSelect later became Homestore.)

Wolff, who served as chairman and CEO of Homestore from 1997-2002, was found guilty of conspiracy, filing false statements with the Securities and Exchange Commission, lying to accountants, fraudulent insider trading, and falsification of corporate books and records. He faces prison time on the criminal charges, as well as additional civil charges from SEC.

His conviction marks an end to a long saga that has plagued Homestore for years, causing the company to restate earnings, restructure management and undergo shareholder lawsuits that cost the company millions of dollars in settlements.

Wolff’s crime involved circular transactions by which Homestore recognized its own cash as revenue, according to the SEC. The company agreed to pay companies to buy advertising on its Web site through third-party vendors. In the so-called "round-trip" transactions, Homestore booked the advertising as sales and kept the true nature of the deals from its auditors and investors.

Homestore in the first two quarters of 2001 paid nearly $50 million to various vendors who paid $45 million to "a major media company" to purchase online advertisements. Homestore recorded $36.7 million in revenue from those transactions, in essence recycling its own money to generate revenues, according to the SEC, which also charged that the same scheme was used with another media company in the second and third quarters of 2001 to fraudulently recognize an additional $9.7 million in revenue.

In late 2001, Homestore admitted to the irregularities and restated its financial results and re-filed its SEC reports to reflect the findings of an investigation by the company’s board of directors’ audit committee, consultants and outside accountants.

The company suffered mightily under the blow of the scandal, and this year re-branded itself as Move Inc.

In 2001, Homestore announced a net loss of $1.47 billion, or $13.64 per share, including the effects of restating its financial results for the first three quarters of the year. At one time, the stock was trading at $140 a share; today it trades at $4.70 a share under a new ticker, MOVE.

In addition to Homestore’s woes, former executives, including ex-executive vice president of business development Peter Tafeen, have faced a string of indictments and lawsuits.

The SEC and U.S. Justice Department in April 2005 announced criminal and civil cases against Wolff and Tafeen, who in March pleaded guilty to one count of securities fraud and orchestrating the fraudulent transactions that created a circular flow of money and appeared to inflate the company’s revenues.

Tafeen agreed to testify against Wolff and faces up to 10 years in prison at his sentencing slated for late August.

Ten former Homestore employees have also pleaded guilty to criminal charges related to the fraudulent transactions, and a number of those employees also testified during Wolff’s trial.

Wolff, Tafeen and others were named individual defendants in the massive shareholder lawsuit against Homestore in which the California teachers retirement fund, known as CalSTRS, was the lead plaintiff. Homestore has since settled these shareholder lawsuits.

Three years ago, former COO John Giesecke pleaded guilty to securities fraud and former Homestore CFO Joseph Shew pleaded guilty to securities fraud and wire fraud charges. Former Homestore VP John DeSimone pleaded guilty to insider trading.

The SEC alleged that Giesecke, Shew and DeSimone arranged the round-trip transactions for the sole purpose of artificially inflating Homestore’s revenues to exceed Wall Street analysts’ expectations. The defendants "circumvented applicable accounting principles and lied to Homestore’s independent auditors" about the transactions at the same time that they exercised stock options at prices ranging from approximately $21 to $32 per share and reaped profits ranging from approximately $169,000 to $3.2 million, the agency said.

Giesecke agreed to repay more than $3.4 million from the exercise of Homestore stock options and to pay a $360,000 civil penalty. Shew and DeSimone agreed to repay more than $1 million and approximately $177,800, respectively.

In January 2003, the SEC filed civil and criminal charges against Jeff Kalina, who was Homestore’s senior manager of mergers and acquisitions. The charges alleged that he participated in the financially fraudulent round-trip schemes.

Wolff was the only defendant to take his case to trial. The trial lasted three months in U.S. District Court in Los Angeles before the jury, which began deliberating Wednesday, reached a guilty verdict.

Read the Inman News 205-page report, "The Homestore/Realtor.com Saga."

For more Inman News coverage of the Stuart Wolff trial, see "Wolff testifies in his own defense," "Defense takes turn in Wolff trial," "Former Homestore CFO testifies against Wolff," "Chickenpox delays Wolff trial," "Sixth witness testifies in Stuart Wolff trial," "Ex-Homestore CFO testifies against Wolff," and "Trial begins for former Homestore exec."

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