U.S. Securities and Exchange Commission
Litigation Release No. 18355 / September 18, 2003
Accounting and Auditing Enforcement Release No. 1864
SEC v. Sophia M. Kabler (U.S. District Court for the Central District of
California, Civil Action No. CV 03-6716 JFW(VBKx))
SEC and United States Attorney Charge Former Homestore Executives with
Scheme to Inflate Advertising Revenue
SEC files charges against five former Homestore executives and the former
CEO and CFO of a Homestore vendor for engaging in fraudulent round-trip
transactions
Three former Homestore executives to plead guilty to criminal charges
The United States Securities and Exchange Commission, the United
States Attorney's Office for the Central District of California, and
the Federal Bureau of Investigation today jointly announced the filing
of civil and criminal charges against former executives of Homestore,
Inc., the Westlake Village, Calif., company that provides real estate
listings and related services on the Internet. The SEC also announced
the filing of civil charges against the former CEO and CFO of a
Homestore vendor for assisting in the fraudulent scheme at Homestore.
All of the defendants have agreed to settle the Commission's lawsuit
and to cooperate with the government in its ongoing investigation.
Additionally, three of them have agreed to plead guilty to criminal
charges.
With these charges, the SEC has now charged a total of 11 individuals
for their roles in a financial fraud scheme at Homestore, 7 of whom
have been criminally charged by the United States Attorney in Los
Angeles.
The civil and criminal actions allege that the defendants structured
and negotiated fraudulent "round-trip" transactions for the purpose of
artificially inflating Homestore's on-line advertising revenues to
exceed Wall Street analysts' expectations, even though these
transactions had no economic substance. In these round-trip
transactions, Homestore paid inflated sums to various vendors for
services or products, and, in turn, the vendors used these funds to
buy advertising from two media companies. The media companies then
bought advertising from Homestore, and Homestore improperly recorded
the money it received from the sale of such advertising as revenue in
its financial statements. The essence of these transactions was a
circular flow of money by which Homestore recognized its own cash as
SNIPPETS:
SEC v. Sophia M. Kabler (U.S.
District Court for the Central District of California, Civil Action No. CV 03-6716 JFW)
SEC and United States Attorney Charge Former Homestore Executives with Scheme to Inflate
SEC files charges against five former Homestore executives and the former CEO and CFO of a
The United States Securities and Exchange Commission,
States Attorney's Office for the Central District of California, and the Federal Bureau of
three of them have agreed to plead guilty to criminal charges.
The civil and criminal actions allege that the defendants structured and negotiated
In these round-trip transactions, Homestore paid inflated sums to various vendors for
The SEC's civil complaint and the United States Attorney's criminal information, filed today
* Jessica McLellan, 29, of San Francisco, Calif., was a manager in Homestore's SAG from
Richards is a certified public accountant licensed by the State of California.
* Brian Wiegand, 34, of Waunakee, Wis., was the chief executive officer and is a director of
The SEC charged the defendants variously with violating or aiding and abetting violations of
ls provisions, Section 13of the Exchange Act; and lying to the auditors provisions, Rule 13b2-2
The Justice Department's criminal action charges Thomas Vo and Sailesh Patel with one count
Vo, Patel and McLellan have agreed to settle the SEC's lawsuit, to plead guilty to the
In the SEC case, Kabler will be enjoined from committing future violations of the charged
Previously in this matter, Homestore's former Chief Operating Officer, John Giesecke, its
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