LOS ANGELES–Federal prosecutors questioned a key witness Tuesday in an effort to build their case against former Homestore CEO Stuart Wolff, who is on trial here facing allegations of securities fraud and illegal insider trading of the company’s stock.
John Giesecke, Homestore’s former CFO and then COO, testified about the company’s Wall Street-focused culture from 1998 through 2001, the year of an alleged criminal conspiracy among a number of the company’s senior executives. Giesecke said Wolff closely followed fluctuations of Homestore’s stock price and was involved in the company’s initial public stock offering, reports filed with the Securities and Exchange Commission, press releases that announced quarterly financial results and conference calls with stock analysts.
An attorney for the government asked Giesecke whether he followed what happened to other Internet company stocks in late-2001 when they reported quarterly revenues that were below Wall Street analysts’ expectations.
“The market’s reaction was pretty swift and pretty brutal. If you missed your numbers, your stock price was affected in a negative way,” Giesecke replied.
The former COO’s testimony also presented information about Homestore’s revenue model, Wolff’s “keen” interest in the company’s financial matters and his role as a “principal negotiator” in Homestore’s first marketing deal with America Online and acquisition of Move.com from Cendant Corp. Giesecke also explained stock options to the jury and testified that Wolff at that time held options to purchase “in excess of 4 million” shares of the company’s stock.
The prosecution also utilized Giesecke’s turn on the witness stand to introduce a magazine cover and two posters that Giesecke confirmed had been displayed at Homestore’s offices. One poster that Homestore’s marketing department created prior to the company’s initial public stock offering pictured Wolff seated on a motorcycle in front of Giesecke wearing a cowboy outfit. The caption read: “One Bike, Two Guys, About to Knock Wall Street on Its Ass.”
Giesecke said Wolff was “keen to wrap up the (real estate) space (on the Internet) and enter exclusive relationships with other real estate and Internet companies” and was “very involved in financing the company with (funding from) influential venture capitalists and private investors.”
Attired in a gray suit, white shirt and conservatively patterned tie, Giesecke explained technical financial terms to the jury and answered the prosecutor’s questions in direct, concise statements. He appeared to be calm and deliberately cooperative.
Giesecke pleaded guilty to securities fraud in October 2002 in an illegal scheme that inflated Homestore’s revenues by $46 million in 2001 through so-called “round-trip transactions” that enabled the company to recognize its own cash as revenue. He agreed to repay more than $3.4 million that he received from the sale of company stock, plus a $360,000 civil penalty. He faces up to five years in prison in a settlement agreement that required his cooperation with the government’s investigation into the accounting fraud. His testimony and presumably cross-examination by defense counsel, are expected to continue Wednesday in Judge Percy Anderson’s courtroom on the ground floor of the U.S. Criminal Courts building in downtown Los Angeles.
Wolff, who was seated in the courtroom with his attorneys, remained expressionless throughout today’s testimony. In appearance, the former CEO looked much the same as he did five years ago, still a tall lean man with a long face, a ski-slope nose, brown hair and blue eyes. His wife, a slim blonde wearing a plain gray pantsuit, was seated in the public section of the courtroom. A paralegal from Homestore’s legal counsel was also in the courtroom to take notes on any developments that might affect the company, which is not directly involved in the trial at this time.
Before Giesecke took the witness stand, the court heard the testimony and cross-examination of Rosalind Tyson, associate regional director for regulation at the SEC office here. Tyson explained the intricacies of various SEC reports and forms and the process of electronic signature authentication to the jury, which is comprised of mostly men and a few women of various ethnicities.
As a group, the jurors’ expressions wavered between bored and attentive throughout the four hours of testimony. The start of the trial was delayed one hour this morning while the court awaited the arrival of one juror, who was on a bus on the freeway en route to the courthouse.
Marcie Geffner is a real estate reporter in Los Angeles.
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