Homestore's prospects improve despite fraud scandal.

As a Los Angeles jury announced its guilty verdict in fraud trial of former Homestore Inc. chief Stuart Wolff last week, the company's current management was across town delivering cheerier news to shareholders of the online home-listings provider.

The stock of the Westlake Village company closed at $4.77 just before the verdict was announced on June 22--far below highs topping $100 a share enjoyed at the height of the dot.com boom--but Homestore these days is revitalized and expanding into new real estate service areas. While the company still reports net losses, year-over-year revenues continue to improve and a majority of Wall Street analysts covering the company give it the equivalent of a "buy" recommendation.

"Despite a slowing real estate market, its business model, which is largely subscription-based, is well suited to continue to prosper," analysts at Piper Jaffray & Co. said earlier this year. "We believe Homestore will emerge from 2006 with strong growth across its segments."

Prospects were far bleaker in January 2002 after the company admitted that it had overstated 2001 revenues, triggering a series of civil and criminal investigations. Share prices plummeted, costing investors an estimated $100 million. The company's most important client, the National Association of Realtors, at one point considered abandoning its stake in the company.

Prosecutors claimed executives used sham transactions in 2001 to artificially inflate sales at the company by $67 million, part of an effort to meet analyst expectations. In a procedure known as "round-tripping," the company paid inflated amounts to various vendors. The vendors in turn used the money to buy advertising from media companies such as AOL, which then bought advertising from Homestore. Homestore then booked those ad sales as income. Ten former company executives eventually pleaded guilty to roles in the accounting fraud.

In 2003 Homestore, then under new management, settled an investors' suit over the transactions for $93 million. PricewaterhouseCoopers last year agreed to pay $17.5 million to settle an investor class-action lawsuit over its flawed audits of the company in 2000 and 2001.

Wolff, who resigned after the 2002 announcement and continues to maintain his innocence, was convicted last week of conspiracy to violate securities laws, insider trading, and falsifying the company's records. He could face as much as 185 years in prison when he is sentenced on Sept. 11. His lawyer said Wolff planned to appeal the verdict.