Former Homestore.com chairman and CEO Stuart Wolff was sentenced to 4 1/2 years in prison Monday after a judge rejected a plea by his lawyers for a lighter sentence.
A plea agreement Wolff signed in January called for him to spend between three and five years in prison for his role in a scheme that artificially inflated Homestore’s revenue in 2001. Wolff pleaded guilty to one count of conspiracy to commit securities fraud.
Wolff’s attorneys maintained that he should receive the lightest possible sentence possible under the agreement because he signed off on the scheme but did not initiate it.
Homestore, which operates Realtor.com, rebranded as Move Inc. after other top executives were convicted of engineering circular advertising deals that the company later admitted inflated the company’s revenue by nearly $200 million.
In sentencing Wolff, U.S. District Judge Gary Feess said the Homestore scheme caused "widespread injury to untold numbers of people in the stock market," and was a "calculated deception of the public."
Former Homestore executive vice president Peter Tafeen was previously sentenced to 27 months in prison; former Homestore chief operating officer John Giesecke received 12 months; and chief financial officer Joseph Shew 6 months.
Before Monday’s sentencing hearing, Wolff’s attorneys argued that he was merely in a position to "green light" the fraud, while Tafeen was "the admitted master-mind and architect of the scheme" and Shew "the day-to-day implementer."
Prosecutors said the relatively lenient sentences handed down to Shew, Giesecke, and Tafeen reflected their willingness to cooperate with the government in efforts to prosecute Wolff and others. Shew and Giesecke, they noted, entered guilty pleas and accepted responsibility for their actions eight years ago.
A total of 11 defendants had previously been convicted in the case, including executives at companies that participated in the circular advertising deals that helped Homestore inflate its earnings.
At a previous trial in 2006, Wolff, now 46, was convicted of more than a dozen criminal charges and sentenced to 15 years in prison.
An appeals court reversed the conviction, saying the judge presiding over the trial should have recused himself because he owned stock in America Online, one of the companies that allegedly served as third-party intermediaries in the circular advertising deals.
In the leadup to Wolff’s retrial, his new defense team claimed it had uncovered evidence that employees of Homestore’s accounting firm, PricewaterhouseCoopers, modified or destroyed evidence in the case.
The accounting firm has said its employees "complied with professional standards," but prosecutors acknowledged "inconsistencies" in statements by the accounting firm and dropped four counts of the 23-count indictment pending against him (see story).
The eight-year investigation and legal battles have "been draining emotionally and physically and will almost if not entirely wipe (Wolff) out financially," his attorneys said in a March 31 filing outlining their case for a light sentence.
The notoriety and length of the case mean a three-year sentence would be a sufficient deterrent to others considering similar crimes, Wolff’s lawyers argued, and also provide the punitive punishment called for by the law.
Wolff’s criminal conviction, "reported in the press and forever available in this Internet age, effectively brands him a pariah for the rest of his life," his attorneys said.
Wolff’s defense team submitted letters from relatives, colleagues and friends describing his conduct as "out of character" with his values and his "humble and caring upbringing."
Wolff, who founded the company that would become Homestore at age 33, "is truly sorry for his actions, takes full responsibility for his conduct, realizes and feels devastated by the harms caused, and knows that he likely will live the rest of his life making amends for his misconduct," his attorneys said. …CONTINUED
The letters included pleas for a lenient sentence from Wolff’s mother and father, his sister, his wife, and one of his sons.
In their response, prosecutors said they did not dispute "the sincerity of the moving letters submitted by Wolff’s family and friends."
But Wolff has displayed "selective memory" about his involvement of "the pervasive misconduct of his key lieutenants and their subordinates," prosecutors said, and was in fact "a key player in this significant financial scandal."
Prosecutors were also unmoved by Wolff’s claim that he was unable to pay more than $5 million in restitution.
Wolff netted more than $8.6 million from sales of Homestore stock between April and August of 2001, prosecutors said. Until recently, Wolff has "consistently reported assets" of greater than $8 million, prosecutors said, but now claims the value of his Westlake Village home has fallen by 20 percent and that his hedge-fund investments are worth 60 percent less than previously reported.
Judge Fees put off a decision on how much restitution Wolff will be required to pay.
Prosecutors estimate Homestore investors lost $1.6 billion after the fraud was discovered — a claim Wolff’s attorneys say is based on an oversimplified analysis of the decline in the company’s share price.
There is no evidence as to how many shareholders sold how many shares after the fraud was revealed, Wolff’s attorneys said, and the government made no attempt to determine how much of the underlying value of the stock due was artificially induced through fraud.
Prosecutors countered that the law does not require them to prove the precise loss that each shareholder incurred during the period of the fraud.
"It is obviously not possible for the government to interview all of the Homestore shareholders who bought or held the company’s stock during 2001 regarding the losses caused by the fraud scheme," prosecutors said.
In a separate civil suit, attorneys for Homestore investors have collected more than $120 million in damages through settlements with Homestore, PricewaterhouseCoopers, and others (see story).
Wolff is the final defendant in the civil case, with proceedings suspended pending the outcome of his criminal trial.
Wolff’s plea agreement stipulates that he should receive credit for any payments he makes in the civil suit and in another case brought by the U.S. Securities and Exchange Commission.
"I’m glad he’s finally taking responsibility for at least a portion of the fraud of Homestore," said Nancy Fineman a Burlingame, Calif.-based attorney representing Homestore investors. "It’s kind of too bad he didn’t 10 years ago when this all broke, like some others did."
A scheduling conference in the civil case is set for May 11.
"We are interested in seeking all from him that we can get," Fineman said before Wolff was sentenced Monday. "Whatever prison sentence he has, he will still be a fairly young man."
Wolff has requested to serve his time at a federal prison camp in Santa Barbara County, Calif. — the Federal Correctional Institution, Lompoc. He was ordered to begin serving his sentence by June 21, 2010. He will be about 51 when he is released.
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