Cendant rebuts hint of SEC probe
November 25, 2002
Says 'no basis' for reported investigation of Homestore deals
Inman News Features
Cendant Corp. today refuted a New York Times report that the Securities Exchange Commission is investigating the company's involvement in the alleged financial wrongdoing at Homestore.
An article in today's newspaper said securities regulators are investigating Cendant's dealings with Homestore. The article attributed the information to unidentified "people involved in the investigation."
But Cendant this morning issued a statement that said: "There is no basis for, nor is there any indication of an investigation by the SEC or other authorities into Cendant with regard to the alleged activities at Homestore."
The Times reported that the head of the SEC's Pacific regional office declined to comment on whether the SEC is looking into Cendant's alleged involvement in Homestore's barter transactions.
Inman News today contacted Sandra Harris, associate regional director of the same office, and she also declined to comment on the matter.
Cendant's statement also said it received "no revenue from Homestore since June 1999" and "the alleged 'round-trip' transactions between Homestore, Cendant and the independent Real Estate Technology Trust have no basis in fact." The trust is a fund Cendant set up five years ago to make bulk purchases of technology products and services for its brokerage units.
The alleged round-trip transactions are described in the amended complaint filed in the class-action shareholder lawsuit against Westlake Village, Calif.-based Homestore, which operates the National Association of Realtor's official homes-for-sale Realtor.com Web site and sells marketing and technology products to real estate brokers and agents. The complaint accuses Homestore, certain of the company's former executives, Cendant, AOL and a long list of smaller technology and media companies of defrauding Homestore shareholders by knowingly disseminating bogus financial statements to inflate the company's stock valuation.
Homestore restated seven quarters of financial results because barter transactions had been improperly booked as revenue. Three former executives pleaded guilty to securities fraud and reportedly are believed to be cooperating with plaintiffs' counsel in the lawsuit. The SEC and U.S. Justice Department have commended Homestore for its cooperation with their investigations and are not pursuing charges.
The complaint alleged that Homestore's 2001 acquisition of Cendant's move.com and Welcome Wagon operations was one leg of a fraudulent "triangular transaction...in which Homestore bought revenue in exchange for an ownership interest in Homestore." Cendant received 21.3 million shares of Homestore stock worth approximately $761 million in exchange for move.com and Welcome Wagon. The complaint attempted to tie that acquisition to Real Estate Technology Trust's purchase of $80 million worth of Homestore products and services.
The complaint also stated that Real Estate Technology Trust in 2001 bought $15 million of virtual home tours from Homestore and alleged that that purchase was tied to a "give back" of $15 million to Cendant in the first quarter of 2002. The complaint points to Homestore's legendary former deal-maker Peter Tafeen as the alleged linchpin holding together the supposed sides of the triangle.
The New York Times reported that Tafeen "arranged a circular transaction with Cendant and the trust to tap the remaining $15 million, according to people involved in the investigation." The sources are not identified in the story.
Cendant today said it has "disclosed in numerous public filings over the past five years its relationship with the Real Estate Technology Trust and beginning in 2000 the Trust's relationship with Homestore."
The New York Times article elaborated on longstanding business ties that exist between Cendant and Homestore, Homestore and AOL, and particularly AOL and Cendant in the person of Robert Pittman, who was chief executive of Century 21 Real Estate Corp., then president of America Online and COO of AOL Time Warner until he resigned in July after the company restructured its management.
The Homestore shareholder lawsuit alleged that some of those ties amounted to fraudulent round-trip transactions that are central to the complaint's argument, but testimony and evidence have yet to be produced in court and whether the allegations will stand up to legal scrutiny remains to be determined.
Copyright: Inman News Service