Cendant named in Homestore complaint
November 18, 2002
Real estate firm allegedly involved in illegal transactions
Inman News Features
Cendant Corp. was named in a detailed and comprehensive civil lawsuit filed on Friday that alleges that the New Jersey-based firm engaged in bogus transactions with Homestore that allegedly resulted in the online real estate firm booking sham revenues, pumping up its stock price and deceiving its investors.
Cendant CEO Richard Smith was among 10 individuals named in the amended complaint, which was filed by the California State Teachers' Retirement System in District Court in Los Angeles.
Top Producer, IPIX and Bank of America, along with 15 other firms, were also mentioned in the complaint. With a raft of new twists, the 240-page complaint paints a sordid history of Homestore dragging in the names of a long line of firms both online and offline, including RE/MAX, GMAC and Wells Fargo, although those firms weren't named in the complaint or accused of wrongdoing.
At the heart of the alleged wrongdoing was Homestore's actions to "buy revenue" or create round-trip transactions. While that part is not new, the complaint details the role of top executives at Homestore, including former CEO Stuart Wolff and the "prince of deals" Peter Tafeen and for the first time makes allegations about David Rosenblatt, a former Intuit executive who was part of the inner circle with Wolff and Tafeen.
According the complaint, the questionable deals date back to a 1998 transaction in which Homestore paid RE/MAX International $5 million for exclusive listings and the Denver-based real estate franchise paid Homestore $5 million for Web site development and hosting, which the online real estate firm booked as revenue. Homestore also booked the exclusive listing agreement with RE/MAX as an asset. RE/MAX is mentioned in the complaint, but is not named as a defendant.
Homestore later began to give away stock for services in these barter arrangements and dragged in third parties to book the round-trip revenue. According to the complaint, the online realty firm reported big quarterly revenue gains and insiders sold stock after these filings, benefiting personally from the activity.
In addition to AOL/Time Warner and Cendant, the amended complaint also named L90, Dorado Corp., Akonix Systems, Internet Pictures, CityRealty.com, Classmates Online, CornerHardware.com, GlobeXplorer, Privista, PromiseMark, RevBox, SmartHome, WizShop.com and Top Producer Systems.
The expanded scope of the allegations, including descriptions of specific transactions at the "heart of the fraud," were obtained from "confidential sources with personal knowledge of how the fraud was accomplished," the complaint states. It describes the sources as people who were part of Homestore's senior management team during the class-action shareholder lawsuit period from May 4, 2000, to Dec. 21, 2001.
Copyright: Inman News Service