Seven former employees and business partners of Homestore Inc. settled charges that they helped the Internet real estate company inflate its revenue through fraudulent "round trip" transactions, federal prosecutors and regulators said Thursday.
The seven -- mostly former lower-level managers at Westlake Village-based Homestore, along with the former chief executive and chief financial officer of a Wisconsin company -- settled lawsuits filed by the Securities and Exchange Commission, and three agreed to plead guilty to criminal charges.
In a joint statement, federal prosecutors, the SEC and the FBI said the former Homestore employees were directly involved in setting up questionable transactions and misleading the company's outside accountants by altering Web sites and documents to erase incriminating information, and using false addresses.
Several sales personnel also were accused of profiting by taking under-the-counter payments from Homestore vendors who helped recycle the firm's cash, or by selling stock during the scheme.
The seven agreed to cooperate with an investigation that prosecutors expect to produce indictments by March of defendants who have refused to enter plea bargains. Those under scrutiny include top managers at Homestore who quit as the scandal broke in late 2001, as well as employees of other businesses allegedly involved in the schemes.
Four Homestore financial officers previously pleaded guilty to fraud and are cooperating. The new names included one more financial expert: accountant Adam S. Richards, 34, of Oak Park, Calif., Homestore's manager of financial planning in 2001.
Richards settled SEC charges by agreeing not to practice as an accountant before the commission and agreeing to pay $11,894, representing profits from selling Homestore stock, plus interest and a fine. His attorney, Glen T. Jonas, said Richards "is pleased to lend his support" to the continuing SEC and criminal probes.
The other former Homestore employees who were charged worked in online ad sales and business development -- the departments that prosecutors say worked out the deals that allowed Homestore to overpay other companies for goods and services with funds that then were recycled back and booked as revenue through a series of online advertising deals.
"Knowledge of accounting is relevant to certain issues," said Assistant U.S. Atty. Michael Wilner, a prosecutor on the Homestore case. "But knowing you're doing something wrong, or withholding information or lying, can also be criminal conduct."
The highest-ranking former Homestore executive was Sophia Losh, 37, of Mill Valley, Calif., a senior vice president of advertising sales who reported directly to the head of the Homestore unit that crafted the questionable "round trip" deals.
Losh settled SEC charges by agreeing to repay $530,119 in stock profits and commissions. She also will pay a $120,000 fine and was banned from becoming an officer or director of a public company. She was not charged criminally.
"Ms. Losh is glad to have reached resolution of this matter, but she's saddened by the impact this episode has had on so many people," said her attorney, Nanci Clarence.
Former Homestore employees Thomas Vo, 29, of Westwood; Sailesh Patel, 36, of Los Altos; and Jessica McLellan, 29, of San Francisco, each agreed to plead guilty to one count of fraud. Under the terms of their plea agreements, they could receive light sentences such as home confinement if their cooperation is deemed complete.
McLellan, who agreed to pay the SEC $38,160 in profits from stock trades and fines, "was brand-new on the job and brought into a high-pressure environment of questionable ethics," said her attorney, Cristina Arguedas.
Patel's attorney, Michael Proctor, likewise portrayed his client as "a bright young man who got caught up in this milieu where he was encouraged to cut corners to benefit the bottom line."
Patel, who came forward and confessed his wrongdoing voluntarily to prosecutors, will pay $170,806, consisting of kickbacks from customers, interest and a fine.
Vo's attorney couldn't be reached for comment.
David Slayton, 34, former CFO of NameProtect Inc. in Waunakee, Wis., and Brian Wiegand, 34, the former CEO of the trademark-protection company, settled SEC charges by agreeing to pay $35,000 each in fines. Their lawyer said they have resigned and started another company.
Louis Caprino, head of the FBI's Los Angeles operations, said his office had 183 special agents devoted to investigating white-collar crime -- a fact he said "should send a clear message to the community of our commitment."