CALIFORNIA TEACHERS’ PENSION AND HOMESTORE SETTLE CLASS ACTION SUIT
Corporate Governance Reforms Highlight Settlement
SACRAMENTO – Homestore Inc. has agreed to reform its corporate policies and to pay approximately $64 million in cash and stock to settle a class action lawsuit accusing the Internet real estate company of falsifying financial statements and engaging in accounting irregularities.
The settlement, reached between Homestore and the lead plaintiff, the California State Teachers’ Retirement System, was announced Wednesday. The suit is being prosecuted on behalf of CalSTRS by the Burlingame, California law firm Cotchett, Pitre, Simon & McCarthy, lead counsel, and their co-counsel Wasserman, Comden, Casselman & Pearson of Tarzana, California.
“This settlement represents a major victory for all shareholders, not just those with Homestore stock,” said Jack Ehnes, chief executive officer of CalSTRS. “Homestore has agreed to institute meaningful corporate governance protections, setting an example for all of Wall Street. At the same time we were able to meet our goal of recovering significant compensation for the class.”
Under the settlement, subject to approval by the U.S. District Court in Los Angeles, Homestore will adopt innovative and cutting edge corporate governance provisions including:
- Requirements for independent directors and special committees
- A non-classified board of directors with two-year terms
- Appointment of a new shareholder-nominated director
- Prohibition on the future use of stock options for director compensation
- Requirements for minimum stock retention by officers after exercise of future stock option grants
Homestore also will pay $13 million in cash and issue 20 million shares of common stock to members of the class. As of closing on August 12, that stock was valued at $50.6 million.
Bruce L. Simon of Cotchett, Pitre, Simon and McCarthy, said the settlement “is a major first step in recovering the losses suffered by shareholders of Homestore and assuring that the company will strictly adhere to corporate governance policies that will prevent any financial manipulation in the future.”
The settlement covers only Homestore, Inc. and certain officers and directors. Legal action against other defendants in the case is pending. Those defendants include Stuart H. Wolff, former chief executive officer and chairman of the board of Homestore; Peter B. Tafeen, former executive vice president, business development and sales; and PricewaterhouseCoopers, the accounting firm that audited Homestore’s financial statements.
CalSTRS, with a $100 billion investment portfolio, is the third largest public pension fund in the nation. It administers retirement, disability and survivor benefits for California’s public school educators in grades kindergarten through community college, serving more than 715,000 members and beneficiaries.