U.S. government prosecutors have asked a panel of judges to reconsider a ruling that dismisses the conviction and sentencing of the former CEO for Realtor.com operator Homestore Inc., now known as Move Inc.

Stuart Wolff, who served as CEO and chairman for Homestore from 1997 until his resignation during the company’s internal investigation in 2002, was convicted in June 2006 on 18 counts, including conspiracy to commit securities fraud, falsifying company books and records, lying to accountants and engaging in illegal insider trading. He was sentenced to 15 years in prison and ordered to pay a $5 million fine and $8.6 million in restitution to shareholder victims.

That conviction was scrapped by a panel of three judges from the U.S. 9th Circuit Court of Appeals, who ruled in January that the judge in the Wolff trial should have been removed from that case because of a financial interested in America Online, a company that had engaged in transactions with Homestore that were a focus of the trial. The ruling sends the case back to U.S. District Court for an entirely new trial, unless the panel’s ruling is reversed in a rehearing.

In the financial transactions between Homestore, AOL and other companies — dubbed "triangular" deals or "round-trip" transactions by prosecutors — Homestore channeled money to other companies and some of that money eventually returned back to the company and was recorded as advertising revenue. Prosecutors charged that Homestore participated in about 23 of these deals involving about $67 million in revenue, and that AOL participated in about 17 deals.

In their request for a rehearing, filed Feb. 27, federal prosecutors stated that Judge Percy Anderson, who presided over the Wolff trial, "voluntarily disclosed his financial interest" in AOL, and later allowed an independent judge to consider whether he should be recused, or removed from the case based on this financial interest.

Anderson, the 9th Circuit Court of Appeals panel found, did acknowledge that he owned AOL stock but did not specify the date of purchase, amount of stock held or whether he had engaged in any subsequent transactions involving the stock.

U.S. District Court Judge John F. Walter denied the motion for recusal by Wolff’s attorneys, finding that Anderson’s financial interest in AOL was not relevant to the case. The 9th Circuit Court of Appeals panel found that Anderson’s rulings "could potentially have had a financial impact on AOL," and that "the judge did have a financial interest in the subject matter in controversy."

E. Lawrence Barcella Jr., a lawyer for Wolff, could not be reached for comment today about the latest developments in the case.

Prosecutors state in their petition for a rehearing that the panel decision to toss out Wolff’s conviction should be revisited because "even the facts newly presented on appeal do not show a direct link between the outcome of this litigation and the finances of AOL," and Wolff’s defense "made no argument in the district court that the result of (the) criminal case could somehow impact the overall market price for AOL stock or the company’s shareholders."

Judge Walter, prosecutors also charge, determined that Anderson should not be recused from the Wolff trial based on information provided by Wolff’s lawyers at that time, while the panel considered additional information that surfaced after the trial.

"It was not until this appeal that the defendant brought up the facts upon which the panel relied to find that recusal was appropriate," prosecutors charged, adding that the panel reached a conclusion "that Judge Walter abused his discretion based on facts never presented to that judge."

Besides Wolff, 11 former Homestore officials have been convicted for participation in illegal schemes that contributed to the company’s financial problems and restatement of earnings. Following his conviction in June 2006, Wolff spent five weeks in custody and has since been confined to his Southern California home under electronic monitoring.


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