A judge has denied former Homestore.com Chairman and Chief Executive Officer Stuart Wolff’s motion for an evidentiary hearing before he is retried on fraud charges, clearing the way for the long-delayed retrial to begin Jan. 26.

Wolff was convicted of fraud and sentenced to 15 years in prison in 2006 for his alleged role in circular transactions that artificially inflated Realtor.com operator Homestore’s revenue in 2001.

Homestore rebranded as Move Inc. after several other company executives were convicted of violating securities law or settled charges with the U.S. Securities and Exchange Commission (SEC). Homestore also paid $13 million in cash and forfeited 20 million shares of company stock to settle a civil suit by investors.

But Wolff’s conviction was vacated in 2008, when an appeals court found that the judge presiding over his first trial should have disqualified himself because he owned stock in America Online, a company that allegedly served as a third-party intermediary in some of the deals (see story).

Wolff has hired a new defense team for his retrial, which maintains that employees of Homestore’s accounting firm, PricewaterhouseCoopers, modified or destroyed evidence in the case.

Wolff’s lawyers claim he went into his first trial without evidence that could have aided in his defense. A review of electronic documents obtained by Wolff’s defense team after his first trial showed many were altered by PricewaterhouseCoopers after the fact, his lawyers alleged in an Oct. 23 motion.

PricewaterhouseCoopers has denied allegations its employees acted improperly, saying the company "complied with professional standards in connection with our services to Homestore."

After interviewing three PricewaterhouseCoopers employees about the allegations, government prosecutors acknowledged "inconsistencies" in their statements and in records kept by the accounting firm.

Prosecutors said there appeared to be "benign explanations" for those inconsistencies, such as the length of time that has passed since the events in question, but acknowledged that Wolff’s defense team would be able to call into question the credibility of PricewaterhouseCoopers’ records and employees. …CONTINUED

In November, the government moved to drop four counts of its 23-count indictment of Wolff — counts that alleged criminal violations of the lying-to-accountants provisions of federal securities laws.

The government will not call on current or former PricewaterhouseCoopers employees to testify against Wolff, or submit any records generated by the accounting firm as evidence (see story).

While that decision was a victory for Wolff’s defense team, his lawyers had also sought an evidentiary hearing that would allow them to interview PricewaterhouseCoopers employees themselves. In a Jan. 5 order denying a motion for an evidentiary hearing, U.S. District Court Judge Gary Feess said Wolff is free to call any PricewaterhouseCoopers witnesses he feels may be helpful to his defense to testify at his trial.

Based on the government’s recent interviews of PricewaterhouseCoopers employees, Feess said "it is apparent that (the company’s) personnel have conceded that some alterations were made to the documents and that there were materials that should have been retained that were not."

But suggestions by Wolff’s defense team that the accounting firm was trying to cover its own tracks "ignores the fact that (PricewaterhouseCoopers) discovered the fraud and … blew the whistle when it could not confirm the legitimacy of questionable transactions reported by Homestore," Feess said.

No one, except perhaps Wolff, Feess said, "is now claiming that the (circular) transactions were anything but a sham to inflate Homestore’s revenues." Feess also granted the government’s motion to drop four counts of its indictment against Wolff.

The ruling means Wolff is again headed to trial over events that happened nearly a decade ago. After Wolff’s original conviction was overturned in January 2008, the case was reassigned to a judge who had to recuse herself because her husband had represented a former Homestore executive who pleaded guilty and testified against Wolff at his original trial.

After the case was assigned to Feess, a February 2009 trial date was pushed back at the request of both Wolff and prosecutors. An Oct. 13, 2009, trial date was postponed after Wolff’s defense team raised allegations that evidence had been altered or destroyed.


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