Former Chairman and Chief Executive Officer Stuart Wolff has agreed to plead guilty to one count of criminal conspiracy to commit securities fraud for his alleged role in a scheme to artificially inflate Homestore’s revenue in 2001.

A plea agreement signed by Wolff Jan. 7 calls for him to spend between three and five years in prison, and pay restitution to be determined by the judge assigned to oversee his retrial, which was set to start Jan. 26. Wolff is now scheduled to enter a guilty plea at a court hearing tomorrow.

At his original trial in 2006, Wolff was convicted of more than a dozen criminal charges and sentenced to 15 years in prison.

But an appeals court reversed the conviction in January 2008, saying the judge presiding over the trial should have recused himself because he owned stock in America Online, a company that allegedly served as a third-party intermediary in circular advertising deals.

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

The accounting firm has said its employees "complied with professional standards" in providing services to Homestore, the operator that has since rebranded as Move Inc.

Government prosecutors acknowledged "inconsistencies" in statements by PricewaterhouseCoopers employees and in records kept by the accounting firm, and in November moved to drop four counts of their 23-count indictment of Wolff. The counts that were dropped alleged criminal violations of the lying-to-accountants provisions of federal securities law.

Prosecutors said there appeared to be "benign explanations" for the inconsistencies, but that they would not rely on records generated by the firm or call on current or former PricewaterhouseCoopers employees to testify against Wolff at his retrial.

U.S. District Court Judge Gary Feess, who is scheduled to hear Wolff’s plea Tuesday, on Jan. 5 rejected his defense team’s request for an evidentiary hearing into the dispute over altered or missing records, saying Wolff could call PricewaterhouseCoopers witnesses to testify at his retrial (see story).

After hearing Wolff’s plea, it could be two to three months before Feess hands down a sentence. Under the terms of the plea agreement, the sentence would not exceed the statutory maximum penalty of five years in federal prison for the one count Wolff has agreed to plead guilty to.

Assistant U.S. Attorney Mike Wilner, the lead prosecutor in the case, declined to comment on whether the issues Wolff’s defense team raised about altered or missing records were a factor in the government’s agreeing to a lighter sentence than Wolff received following his original trial.

"He’s agreeing not to go to trial, and federal cases typically have more harsh sentences for people who take a case to trial and lose," Wilner said. …CONTINUED

Wolff’s first trial lasted three months. In addition to saving the government the time and expense of another trial, Wolff "has also agreed that he will spend more time in prison as a result of this case than anyone else — that’s a significant concession," Wilner said.

The 11 defendants previously convicted in the case received sentences ranging from probation to 27 months in custody, according to a press release issued by the U.S. Attorney’s Office for the Central District of California.

Wolff’s lead defense attorney did not respond to requests for comment.

Prosecutors said they have not come to an agreement with Wolff regarding restitution. The statutory maximum fine under the single count Wolff has agreed to plead guilty to is $250,000, "or twice the gross gain or gross loss resulting from the offense, whichever is greater."

In the plea agreement, Wolff admits that he signed quarterly reports to investors for the first and second quarters of 2001 "which contained false and misleading representations and omitted material facts regarding the company’s advertising revenue results."

Five counts in the original indictment related to Wolff’s sale of Homestore stock between April and August 2001, which prosecutors said netted him more than $8 million.

But the plea agreement stipulates that in determining the amount of restitution, the court is not restricted to the amounts alleged in the lone count to which Wolff is pleading guilty.

According to a civil suit filed by Homestore investors who claimed $853 million in losses when the circular nature of those advertising deals and others were uncovered, the company erased $192.6 million in revenue from its books when it restated its earnings.

PricewaterhouseCoopers paid $17.5 million to settle allegations raised in the lawsuit, and Homestore has paid $13 million in cash and forfeited 20 million shares of company stock (see story).

Wolff is attempting to settle claims in that case and in another civil suit brought by the Securities and Exchange Commission. If Feess orders Wolff to pay restitution as part of sentencing in his criminal case, the plea agreement stipulates he should receive credit for payments he makes in the two civil cases.

As part of his plea agreement, Wolff agreed not to attempt to avoid paying restitution by filing for bankruptcy.

While awaiting retrial, Wolff has been free on a $2 million bond secured by his home in Thousand Oaks, Calif.


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