CalSTRS Receives Judgment in Homestore Class Action Suit
Former CEO and board chair of Homestore.com pays in securities fraud judgment
WEST SACRAMENTO, CA – A Los Angeles jury awarded the California State Teachers´ Retirement System (CalSTRS) and other investors a multi-million dollar securities fraud judgment against the former CEO of Homestore.com, CalSTRS announced today.
The jury found Stuart H. Wolff, the former chief executive officer and chairman of the board of Homestore, liable for damages due to his actions while heading the company. The judgment, handed down Thursday night, awarded damages based on its per-share loss. The exact amount of damages is being calculated. CalSTRS brought the class action suit seeking damages against the online real estate company after being named lead plaintiff in March 2002.
“CalSTRS and other investors rely on chief executives of public companies to provide full and accurate information about their companies,” said CalSTRS Chief Executive Officer Jack Ehnes. “CalSTRS is pledged to safeguard the financial security of California´s public school educators and can only do this if it has confidence in the integrity of the financial performance of the companies in which it invests.”
The jury found that in 2001, Wolff directly participated in and was responsible for the actions of other senior executives who engaged in a fraudulent scheme where Homestore created a circular flow of money, known as “purchased revenues” in which money flowed from Homestore to outside firms and back to Homestore. This created the illusion that the company was successful and growing. After the fraud was uncovered, Homestore was forced to restate more than $120 million in revenues.
“When CEOs misrepresent the true facts, they must be held accountable to the public and especially to retired public employees,” said CalSTRS General Counsel Brian Bartow. “CalSTRS takes seriously our responsibility to make sure that the securities laws are followed and that our members can obtain redress from fraudulent activity, which is what Mr. Wolff did.”
The securities fraud case, one of the few brought to trial, was heard in U.S. District Court in Los Angeles before the Hon. Ronald S.W. Lew. The CalSTRS trial team was headed by Nancy L. Fineman of Cotchett, Pitre & McCarthy. Wolff was represented by Howard M. Privette of Paul, Hastings, Janofsky & Walker LLP.
CalSTRS had previously settled with other Homestore executives and with the company´s auditor, Price Waterhouse Coopers.
The California State Teachers´ Retirement System, with a portfolio valued at $147.6 billion, is the second largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California’s 852,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.