The Business Crimes Hotline

CALIFORNIA

Former Homestore.com CEO Agrees to Plead Guilty to Securities Fraud Conspiracy

On Jan. 7, 2010, the United States Attorney's Office for the Central District of California announced that Stuart Wolff, former chairman of the board and chief executive officer of Homestore.com, had agreed to plead guilty to a single count of conspiracy to commit securities fraud.

The conspiracy charge arose from an alleged scheme to artificially inflate online advertising revenue in 2001 at Homestore.com, the real estate listing company now known as Move, Inc. According to the government, senior executives at the company used multiple “round-trip” transactions to fraudulently generate a circular flow of money. Using the “round-trip” transactions, Homestore.com then recognized its own cash as revenue in an apparent attempt to improve the company's Wall Street profitability assessment. According to the government, the company's shareholders lost at least $100 million upon public disclosure of Homestore.com's accounting irregularities related to the “round-trip” transactions.

For Wolff, the plea signals the end of a legal process that included a prior conviction in 2006 for his role in the scheme. The 2006 conviction was reversed in January 2008 by the Ninth Circuit, on the grounds that the trial judge should have been recused. According to the government, upon entry of Wolff's guilty plea, the Homestore.com investigation has yielded 12 individual federal convictions.

The plea, entered before Judge Gary A. Feess, calls for a minimum sentence of at least three years in prison. The statutory maximum prison sentence for the charge is five years. Sentencing is scheduled for April 19, 2010, in Los Angeles.

DISTRICT OF COLUMBIA

BAE Systems PLC Reaches Combined Settlement with DOJ And UK Serious Fraud Office

On Feb. 5, 2010, BAE Systems PLC, the UK-based defense, security and aerospace company, announced that it had reached a global settlement with the UK's Serious Fraud Office (SFO) and the U.S. Department of Justice (DOJ).

As part of the proposed settlement with the SFO, BAE agreed to pay a '30 million penalty and plead guilty to one charge of breach of duty to keep accounting records. According to the SFO, the plea and penalty are in response to payments made by BAE to a former Tanzania marketing adviser. As part of the plea, the penalty will be split, in an as yet undetermined manner, between a fine and a charitable payment to benefit Tanzania.

While subject to court approval, BAE's proposed DOJ settlement requires the company to plead guilty to a single charge of conspiracy to make false statements to the U.S. Government relating to BAE's regulatory filings and undertakings. As part of the proposed settlement, BAE agreed to pay a $400 million fine and make additional ongoing compliance commitments.

Business Crimes Hotline was written by Matthew Alexander, an associate at Kirkland & Ellis LLP, Washington, DC.

CALIFORNIA

Former Homestore.com CEO Agrees to Plead Guilty to Securities Fraud Conspiracy

On Jan. 7, 2010, the United States Attorney's Office for the Central District of California announced that Stuart Wolff, former chairman of the board and chief executive officer of Homestore.com, had agreed to plead guilty to a single count of conspiracy to commit securities fraud.

The conspiracy charge arose from an alleged scheme to artificially inflate online advertising revenue in 2001 at Homestore.com, the real estate listing company now known as Move, Inc. According to the government, senior executives at the company used multiple “round-trip” transactions to fraudulently generate a circular flow of money. Using the “round-trip” transactions, Homestore.com then recognized its own cash as revenue in an apparent attempt to improve the company's Wall Street profitability assessment. According to the government, the company's shareholders lost at least $100 million upon public disclosure of Homestore.com's accounting irregularities related to the “round-trip” transactions.

For Wolff, the plea signals the end of a legal process that included a prior conviction in 2006 for his role in the scheme. The 2006 conviction was reversed in January 2008 by the Ninth Circuit, on the grounds that the trial judge should have been recused. According to the government, upon entry of Wolff's guilty plea, the Homestore.com investigation has yielded 12 individual federal convictions.

The plea, entered before Judge Gary A. Feess, calls for a minimum sentence of at least three years in prison. The statutory maximum prison sentence for the charge is five years. Sentencing is scheduled for April 19, 2010, in Los Angeles.

DISTRICT OF COLUMBIA

BAE Systems PLC Reaches Combined Settlement with DOJ And UK Serious Fraud Office

On Feb. 5, 2010, BAE Systems PLC, the UK-based defense, security and aerospace company, announced that it had reached a global settlement with the UK's Serious Fraud Office (SFO) and the U.S. Department of Justice (DOJ).

As part of the proposed settlement with the SFO, BAE agreed to pay a '30 million penalty and plead guilty to one charge of breach of duty to keep accounting records. According to the SFO, the plea and penalty are in response to payments made by BAE to a former Tanzania marketing adviser. As part of the plea, the penalty will be split, in an as yet undetermined manner, between a fine and a charitable payment to benefit Tanzania.

While subject to court approval, BAE's proposed DOJ settlement requires the company to plead guilty to a single charge of conspiracy to make false statements to the U.S. Government relating to BAE's regulatory filings and undertakings. As part of the proposed settlement, BAE agreed to pay a $400 million fine and make additional ongoing compliance commitments.

Business Crimes Hotline was written by Matthew Alexander, an associate at Kirkland & Ellis LLP, Washington, DC.