CalSTRS Seeks Lead Plaintiff Status in Homestore.com Lawsuits
SACRAMENTO, CA – The California State Teachers’ Retirement System today petitioned to be lead plaintiff in a class action lawsuit against Homestore.com, Inc. and several former executives.
CalSTRS filed its motion in the U.S. District Court for the Central District of California (in Los Angeles) asking it to consolidate the related securities class actions and appoint CalSTRS as lead plaintiff. CalSTRS has requested its motion be heard on March 25, 2002.
“As one of the nation’s largest institutional investors, CalSTRS is concerned for the underlying integrity of our economic markets,” said Jack Ehnes, CalSTRS chief executive officer. “We want the public to know there are those who are ready to step up to ensure fair dealings and a level playing field for all shareholders.”
Since December 27, at least 19 suits have been filed against Homestore.com, an online marketplace for home and real estate-related information, products and services. The suits allege Homestore falsified financial statements and engaged in accounting irregularities.
In addition to Homestore.com, defendants include Stuart H. Wolff, the company’s former chief executive officer and chair of the board; Peter B. Tafeen, former chief operations officer; and Joseph J. Shew, former chief financial officer. All three resigned either immediately before news of the accounting misrepresentations was released or shortly thereafter.
Allegations in the complaints against Homestore include:
Homestore issued six false quarterly press releases in calendar years 2000 and 2001, reporting positive revenue growth. The day after several of these announcements, the company’s stock price rose by as much as 25 percent.
The executives named as defendants misrepresented Homestore’s true prospects to conceal their improper acts until they were able to sell at least $27.9 million worth of their own Homestore stock.
Homestore violated fundamental accounting principles in how the company accounted for bartering its website advertising space for business services from an undisclosed trading partner. These improper “roundtrip” transactions resulted in overstated revenues and assets, which misled potential investors.
Other than reimbursement for court-approved costs and expenses, as lead plaintiff, CalSTRS will receive no payment beyond the prorated share of any recovery given to all members in the lawsuit. As lead plaintiff, CalSTRS will represent the claims of all the shareholders, contract for legal representation and provide testimony at trial, if necessary.
CalSTRS served previously as co-lead plaintiff with the Colorado Public Employees Retirement Association against California Micro Devices. That suit ended successfully in settlements with the company and the former chief executive officer.
CalSTRS estimates its Homestore losses at more than $9 million. Between May 4, 2000 and December 21, 2001, the time period cited in the lawsuits, CalSTRS purchased 431,123 shares of Homestore, investing a total of $13.4 million.
CalSTRS is the third largest pension fund in the U.S., with a $100.8 billion investment portfolio as of December 31, 2001. The pension system serves approximately 687,000 members and benefit recipients by providing retirement, disability and survivor benefits to California’s public school educators in grades kindergarten through community college. Those benefits are guaranteed by law and are not affected by changes in the investment portfolio.
CalSTRS Seeks Lead Plaintiff Status: February 25, 2002