Lawyers for Stuart Wolff, the former Homestore CEO who was sentenced in October to 15 years in federal prison for his role in an accounting fraud scheme that artificially inflated Homestore revenues and almost ruined the company, have filed a motion to keep him out of custody pending an appeal of his conviction.
The motion raises questions about a judge’s financial interest in a company involved with Wolff’s case and other aspects of his trial.
U.S. District Court Judge Percy Anderson on Nov. 30 ordered Wolff to surrender himself to federal custody on or before Dec. 13 to begin serving his sentence, though legal proceedings have so far postponed his prison time.
On Dec. 7, Wolff’s lawyers submitted a motion to the Ninth Circuit U.S. Court of Appeals for Wolff’s release, and lawyers had earlier filed a motion with the district court to put off Wolff’s payment of a $5 million fine plus about $8 million in restitution. Wolff remains under electronic monitoring in his Southern California home.
“We think he should start serving his sentence,” said Assistant U.S. Attorney Michael R. Wilner, who is representing the government in the case against Wolff. “We are just waiting to hear what the court is going to do.”
E. Lawrence Barcella Jr., one of the lawyers who is representing Wolff, said, “We think that there are a number of very significant issues that we will be appealing on what we think constituted error which will cause the case to be reversed.” These issues warrant that Wolff should be allowed to remain free pending the appeal, he added. Court briefs related to Wolff’s appeal are due in April and May.
The court had recommended that Wolff serve his sentence at a federal prison in either Lompoc, Calif., or Taft, Calif.
Wolff served as CEO and chairman for Homestore — now known as Move Inc. — from 1997 to 2002, when he resigned during an internal investigation.
A group of 11 other Homestore officials have also been convicted for their participation in illegal schemes that led the company to restate its earnings and almost led to the delisting of the company’s stock, which had dropped to just pennies per share.
The U.S. Securities and Exchange Commission and U.S. Justice Department in April 2005 filed criminal and civil cases against Wolff and Peter Tafeen, the company’s former executive vice president of business development from 1997 to 2001.
Tafeen pleaded guilty to one count of securities fraud and was sentenced to 30 months in federal prison and three years of supervised release.
The government’s case has focused on multimillion-dollar advertising transactions that Homestore entered into with AOL and other companies through which Homestore essentially paid itself by routing money to and from other companies and disguising the true nature of those transactions.
Wolff’s appeal, according to the court filing, “will raise the highly ‘substantial’ question whether the trial judge — the Honorable Percy Anderson — should have presided over the matter in the first place,” as Anderson “acknowledged that he owned AOL stock and recognized that he had a ‘financial interest in AOL.’ ” And the court motion notes that four current or former AOL employees testified at Wolff’s trial.
While Wolff’s lawyers had earlier sought to excuse Anderson from the case on the basis of his financial interest in AOL, a separate U.S. District Court judge had considered the matter and denied that motion. About half of the $67.3 million in disputed Homestore revenue was related to AOL, “which acted as the ‘third leg’ in most of the disputed transactions,” Wolff’s lawyers state in court documents, and they also noted that “the Department of Justice has filed a criminal complaint against AOL … regarding AOL’s participation in at least one of the very transactions charged in the Wolff indictment.”
The Dec. 8 motion by Wolff’s lawyers also takes issue with Anderson’s denial of requests to allow an accounting expert as a witness to explain the complexity of accounting rules, and separate instruction that would have explained to the jury that “triangular deals” with a similar structure to those that Homestore engaged in are not always improper.
Also, Wolff’s lawyers charge in their court filing that the court’s admission of evidence related to Homestore’s financial restatements was improper, and “other courts have concluded in substantially identical circumstances that restatements are not admissible.”
Wolff’s legal team includes Barcella and Howard M. Privette from the Paul, Hastings, Janofsky & Walker LLP law firm in Los Angeles, as well as Lawrence S. Robbins, Gregory L. Poe and Mark T. Stancil from the Robbins, Russell, Englert, Orseck & Untereiner LLP law firm in Washington, D.C. Move Inc. had reached an agreement through which the company would pay up to $15.2 million related to Wolff’s legal fees and up to $11.9 million in Tafeen’s legal costs. The company has also faced legal fees relating to other former employees.
Wilner said that the government has begun the process of collecting money related to the judgment in Wolff’s trial. The restitution amount relates to Wolff’s insider trading profits from the scheme, he said.