Can Homestore restore its tarnished image and rebuild?

Homestore Inc. finally put an end to its four-year-old accounting scandal last week by capping the legal payments to a former executive, who goes on trial next month on criminal charges of defrauding the company.

Now, the question is: can Homestore restore its tarnished image and rebuild?

The online real estate firm reached a settlement with Peter Tafeen, a former executive vice president of business development, and agreed to cap his legal fees at $11.9 million. Tafeen and Stuart Wolff, Homestore's former chairman and chief executive, allegedly masterminded a $160 million accounting scandal in 2001 that eventually forced the company into bankruptcy.

The Westlake Village company's announcement last week came at the same time Homestore said it would be changing its name to Move Inc. in an effort to turn a new leaf and put its legal troubles behind it.

To that end, the company will consolidate its three Web sites--Homestore.com, Homebuilder.com and RentNet.com--into one search engine aimed at consumers who are looking for homes or planning a move.

However, it's unclear whether the cosmetic name change and the Web site consolidation will make much of a difference.

For the last two years, Homestore, which also operates the Realtor.com Web site for the National Association of Realtors, had resisted paying the legal fees of the two former executives, arguing in a Delaware Chancery Court civil action that it was unreasonable to expect a company to pay the legal fees of employees who had committed fraud.

But Chancellor William Chandler rejected Homestore's arguments, and went so far as to threaten its chief executive, W. Michael Long, with jail time if the fees were not paid.

(Both men were later indicted by a Los Angeles grand jury in April and charged with 19 criminal counts of conspiracy to violate securities laws, insider trading, creating false records and lying to accountants. A trial is set for March 28 in Los Angeles.)

So far, Wolff has eaten up $6 million in legal fees and Tafeen roughly $7 million, and their criminal trial has not even started. Other companies including Enron Corp., Adelphia Communications Inc., and Tyco International Inc. also were forced to pay legal fees to executives charged for fraud in the range of $20 million to $25 million.

Its accounting firm, PricewaterhouseCoopers, agreed to pay $17.5 million last year to settle a class-action lawsuit brought by the California State Teachers' Retirement System.

Still, with the final payment to be made this month, Homestore has been able to resolve up to $4 billion in total litigation from the accounting scandal for a fraction of that amount--roughly $100 million.

And Homestore does have one ace up its sleeve: its continuing, unusual relationship with the Realtors' trade group, which owns 2 percent of its shares and has a guaranteed seat on the company's board.

In turn, Homestore has a perpetual agreement to operate the association's Web site. This arrangement represents a source of guaranteed fee income.