Execs of online realty firm to admit inflating earnings

WASHINGTON -- Three former executives of Homestore.com, the nation's largest Internet-based provider of residential real estate listings, have agreed to plead guilty to fraudulently inflating company earnings, Attorney General John Ashcroft announced Wednesday.

Two former executives of Home-store.com Inc., chief operating officer John Giesecke and chief financial officer Joseph Shew, agreed to plead guilty to conspiracy to commit securities fraud. Giesecke also agreed to plead guilty to wire fraud and former vice president John Desimone will plead guilty to insider trading charges, Ashcroft said at a Justice Department news conference.

"Our actions in this case in particular stand as a warning to corporate executives: The Department of Justice will pursue allegations of corporate fraud, regardless of the size or the prominence of the company under scrutiny," Ashcroft said. "We will prosecute those individuals and companies that seek to take advantage of the information technology boom in the economy to steal other people's money."

Earlier, Giesecke's lawyer, Jan Handzlik, confirmed that his client will plead guilty to the charges.

Giesecke is "deeply sorry for his conduct and he intends to fully cooperate with the government," Handzlik said. The lawyer said no plea agreement has been reached, but his client hopes his cooperation will lead to favorable consideration when he is sentenced.

The case could have implications for the government's continuing investigation of accounting practices at AOL Time Warner Inc.'s America Online unit.

Homestore, headquartered in Westlake Village, Calif., ran a network of realty-related Web sites including Realtor.com, the official Web site of the National Association of Realtors. Earlier this year, Homestore said it had overstated revenue in the first three quarters of 2001 by as much as $95-million.

The company has changed its management team and is cooperating with the investigation; Shew and Desimone also have agreed to cooperate.

Giesecke and Shew, together with other high-ranking Homestore officers, were part of a scheme from March to December 2001 to defraud investors and the Securities and Exchange Commission by manipulating Homestore's reported revenues to make them appear greater than they actually were, Ashcroft said.

Homestore entered into an agreement with AOL Time Warner's America Online unit in which Homestore agreed to refer companies to AOL for purchase of online advertising, the Associated Press reported. AOL then agreed to purchase online advertising from Homestore, dependent on the amount of advertising purchased by Homestore's referrals, it reported.

The Associated Press reported that Homestore paid about $48.9-million to companies in 16 transactions. Those companies then paid some $45.1-million to AOL for online ads.

Homestore included about $36.7-million in revenue from the scheme and Homestore included that in its financial statements.

The scheme was carried out by causing fraudulent entries to be made in the company's records, misleading outside auditors, Ashcroft said. In addition, he said, the company filed false financial statements with the SEC.

Giesecke, Shew and Desimone, along with other high-ranking officers, exercised stock options, the AP reported.

Conspiracy to commit securities fraud and mail fraud each carry a prison term of up to five years, while insider trading is punishable by up to 10 years.

The SEC also has filed a civil securities fraud action against the three.

Homestore shares closed down 5 cents, or 12 percent, at 38 cents on the Nasdaq Stock Market.

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