Lawyers for Stuart Wolff, the former CEO for Homestore whom a jury convicted in June for his role in an accounting fraud scandal, on Friday filed an appeal seeking a new trial or re-sentencing before a different judge.

Wolff was sentenced to a 15-year prison term for conspiracy, filing false statements with the U.S. Securities and Exchange Commission, lying to accountants, fraudulent insider trading, and falsification of corporate books and records.

Eleven other former Homestore officials have also been convicted for their participation in illegal schemes, which included fraudulent transactions and inflated earnings reports that led the company to restate its earnings and almost forced the delisting of the company’s stock.

The court brief asks the 9th Circuit U.S. Court of Appeals to review whether U.S. District Court Judge Percy Anderson, who presided over Wolff’s trial, should have been allowed to oversee that trial because of his financial interest in AOL, a company that was a party to fraudulent transactions involving Homestore and other companies.

Another judge had reviewed during the trial whether Anderson’s ownership of AOL stock would require him to be removed from the case, and that judge denied a motion by Wolff’s lawyers to dismiss Anderson. The appeal charges that the judge, as an AOL shareholder, “should not be deciding the admissibility of evidence revealing how deeply into AOL’s hierarchy knowledge of the Homestore deals permeated” and “should not be deciding whether to permit public disclosure of other AOL deals resembling the Homestore deals.”

“Wolff’s convictions should be reversed and the case remanded for a new trial before a different judge,” according to the appeal. “In the alternative, the sentence should be vacated and the case remanded for re-sentencing before a different judge.”

Wolff’s appeal also questions whether the district court erred in preventing testimony from an accounting expert, allowing evidence related to Homestore’s restatements of earnings and allowed comments on those restatements, and determining Wolff’s sentencing and restitution. Anderson had ordered Wolff to pay a $5 million fine and $8.64 million in restitution.

The court filing states that Wolff’s defense was “wrecked” by the judge’s refusal to allow testimony explaining so-called “triangular” deals, also known as “round-trip” deals, which led to inflated earnings. As a part of these deals, money changed hands from Homestore to other companies and some of this money later looped back to the company and was reported as advertising revenue.

The court has not yet ruled whether Wolff is entitled to a new trial, and government prosecutors are expected to file a court statement opposing the appeal. Wolff had been scheduled to begin serving his prison sentence by Dec. 13.

Lawrence Barcella, a lawyer who is representing Wolff, said he will continue to remain out of custody “pending the outcome of the appeal,” though the final conditions of Wolff’s release have not yet been decided. Wolff had served as CEO and chairman for Homestore, now called Move Inc., from 1997-2002, and he resigned amid an internal investigation.

Michael Wilner, assistant U.S. attorney who has representing the government in the case against Wolff, said the government has until May to file a brief opposing the appeal. “After that, the court will decide whether to hold oral argument and to rule on the merits of the appeal,” he said.

Wolff’s appeal alleges that there was “precious little evidence” that Wolff knew that so-called triangular deals “lacked economic substance.” In typical deals that were a focus of the trial, Homestore purchased goods or services from another company; another company purchased Internet advertising from AOL; and AOL placed advertising for other companies on Homestore’s Web sites and paid Homestore a part of revenues, according to the appeal.

AOL, the appeal also states, was “effectively an un-indicted co-conspirator” in the Homestore accounting scandal, and “has been prosecuted by the Department of Justice and charged by the SEC based on the very conduct at issue at Wolff’s trial.”

The government had charged that Homestore participated in 23 transactions worth about $67.3 million in revenue, according to the appeal. Homestore and AOL entered into seven deals in the first quarter of 2001, booking $15 million in revenue, and completed 10 deals in second-quarter 2001 worth about $21.8 million in revenue, according to the court filing.

Also, the appeal alleges that the restitution that Wolff has been ordered to pay is baseless because it is based on “Wolff’s gain as opposed to any loss suffered by a … ‘victim,’ ” and that the estimate of $130 million to $1.6 billion in losses stemming from the accounting fraud “is manifestly wrong.”

The U.S. SEC and U.S. Department of Justice in April 2005 filed criminal and civil cases against Wolff and Tafeen, the company’s former executive vice president of business development from 1997-2001. As a part of a plea agreement, Tafeen pleaded guilty to one count of securities fraud and was sentenced to 30 months in federal prison and three years of supervised release in exchange for testifying against Wolff. The Wolff trial lasted 40 days.

Move Inc. earlier reached settlement agreements with Wolff and Tafeen to pay millions of dollars worth of legal costs.


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