Time running out for fixes at Homestore.com.The clock is winding down at Homestore.com. Over the past several months, the once-mighty real estate portal has endured an accounting scandal, a management overthrow, the evaporation evaporation, change of a liquid into vapor at any temperature below its boiling point. For example, water, when placed in a shallow open container exposed to air, gradually disappears, evaporating at a rate that depends on the amount of surface exposed, the humidity of more than $2 billion in market value and the temporary suspension of trading. It's been sued by shareholders and former business partners, and of the cash left on its balance sheet, most is restricted, tied up in business disputes. The next several months will tell whether Homestore.com can overcome these challenges, or whether the problems will prove too much. Homestore officials, who declined to comment for this story, have said that the company will be cash-flow positive by the end of this year, and that it has the resources to get there. The company had $85 million in cash left at the end of the first quarter, after receiving partial proceeds from the $130 million sale of its CunsumerInfo.com unit to Experian. (The remainder, $58 million, is tied up in a business dispute with MemberWorks Inc. of Stamford, Conn., which sold the unit to Homestore.com last year.) But Homestore burned through $24 million in the first quarter, and although the burn rate appears to be declining, it doesn't have much room for error. One test will come from 19 shareholder lawsuits that were recently combined in federal court here. The lead plaintiff, the California State Teachers Retirement System, or Ca1STRS STRS State Teachers Retirement System STRS Sir Thomas Rich's School (UK) STRS Stimulated Thermal Rayleigh Scattering STRS Supplier Test Report System STRS Straight Talk Retirement System (software) , will decide this week on an outside law firm to handle the case. Within two months, the retirement fund expects to file an amended complaint amended complaint n. what results when the party suing (plaintiff or petitioner) changes the complaint he/she has filed. It must be in writing, and can be done before the complaint is served on any defendant, by agreement between the parties (usually their lawyers), against Homestore.com and some of its former officers, including founder and ex-Chairman and Chief Executive Stuart Wolff, who resigned in January. "I think we'll be able to achieve a significant recovery for the classes," said Christopher Waddell, CalSTRS chief counsel. The basic allegations against Homestore are generally known: that company officials -- now departed -- artificially inflated revenue and earnings, allowing them to profit from millions of dollars worth of insider sales. In late July and early August 2001, for example, only days after Homestore.com reported vastly overstated o·ver·state tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states To state in exaggerated terms. See Synonyms at exaggerate. o results, Wolff, Chief Financial Officer Joseph Shew and other executives sold more than $16 million in stock, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. data from Thomson Financial Thomson Financial A major provider of information, analytical tools, and consulting services to the financial community. The firm, a division of Thomson Corporation, is best known to investors for its First Call segment, which publishes consensus earnings . Wolff and Shew couldn't be reached. "We are very interested as a system to pursue recovery from the individual assets of individual wrongdoers," Waddell said. Restated reports Homestore.com already has restated its financial reports from 2000 and the first three quarters of 2001, lopping lop 1 tr.v. lopped, lop·ping, lops 1. To cut off (a part), especially from a tree or shrub: lopped off the dead branches. 2. off $172 million in previously reported revenues and adding $144 million to its already vast losses. Most of the restatements came as a result of improper
barter Direct exchange of goods or services without the use of money or any other intervening medium of exchange. Barter is conducted either according to established rates of exchange or by bargaining. " transactions that shouldn't have been recorded as revenue. The company also said that it classified some of the payments it made in these deals as capital expenses, so they had the effect of inflating earnings, as well as the assets on Homestore's balance sheet. Homestore also reversed some sales that didn't meet requirements for revenue recognition. The company has said it will recognize some of those sales in future periods. A portion of the restatements are related to an accounting change. Few details of the barter transactions have been made public. L90 Inc., under its own internal and Securities and Exchange Commission inquiries, has said that questionable transactions with Homestore.com occurred in the second and third quarters of 2001. Homestore.com hasn't commented. The allegations, however, may go further than the barter accounting. "That's part of it," Waddell said. "It may be more involved than that." A lawyer familiar with the case said transactions Homestore.com had with AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. Time Warner Inc.'s America Online See AOL. unit also have come under scrutiny. "You'd go to someone like AOL, buy banner advertising Banner Advertising A common form of advertising on the internet. The banner is an advertisement of 460x68 pixels, usually placed at the top of the page Notes: For an example, just look at the top of a page on almost any popular web site. . The real kick in the ass Kick In The Ass (KITA) is a motivational method. This theory involves punishing or threatening workers who are not performing their basic duties adequately and is normally used in businesses in order to improve productivity or quality. was AOL would kick back some of that money to Homestore, I think that was actually cash," the lawyer said. "When they pay for an asset, somehow that asset comes back to Homestore and gets booked as revenue." According to this source, AOL Time Warner's chief financial officer, Wayne Pace Wayne H. Pace (born 1946 or 1947) is currently the chief financial officer and executive vice president of Time Warner Inc.. He has served as CFO since November of 2001. He attended Austin Peay State University where he graduated with a bachelor's degree in accounting and economics Jr., quickly put an end to these transactions after being named to the post on Nov. 1. "He didn't like the smell," the lawyer said. Others, however, say America Online had been looking at its transactions with Homestore for some time, and that these issues were dealt with by the online unit, not the parent. An AOL spokeswoman, Wendy Goldberg, declined comment on the company's dealings with Homestore.com. She said AOL properly accounted for all its barter transactions, but declined to say whether AOL has been contacted by the SEC. Internal probe noted Homestore said in a recent disclosure that after it filed its quarterly 10Q on Nov. 14, it "was made aware of a questionable revenue transaction," and launched an internal investigation, and notified Nasdaq and the SEC. Separately, in November, Homestore said AOL wasn't passing on enough revenue in its marketing agreement, and sought arbitration arbitration Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the . At issue is $90 million in restricted cash pledged to AOL to protect it from price drops in Homestore.com stock issued as payment. AOL and Homestore officials declined to comment on the arbitration proceeding. Since January, Homestore has conducted an overhaul that involved restating its numbers and dismissing seven employees. Undoubtedly, Homestore.com's lawyers have a tightrope to walk. The more eager the company is to make restitution In the context of Criminal Law, state programs under which an offender is required, as a condition of his or her sentence, to repay money or donate services to the victim or society; with respect to maritime law, the restoration of articles lost by jettison, done when the to shareholders and hold individuals accountable, the easier regulators are likely to go on the company. On the other hand, there could be a need to minimize any payouts for past misdeeds, given the meager mea·ger also mea·gre adj. 1. Deficient in quantity, fullness, or extent; scanty. 2. Deficient in richness, fertility, or vigor; feeble: the meager soil of an eroded plain. 3. resources left. Randall Lee, the SEC's regional director for the Pacific Region, declined to confirm or deny even the existence of an investigation into Homestore, or to comment on its actions to date. In general, Lee said, "the nature and extent of a company's cooperation tell us a lot about that company's intent to be a good corporate citizen." Nevertheless, he added, the transgressions can sometimes be so serious that the SEC must pursue severe punishments. It's not clear whether Homestore will distance itself from former executives and their actions. It's also too early to tell whether the shareholder lawsuits can or will be settled, or what actions the SEC might take. "Stay tuned," said one well-placed source. [GRAPH OMITTED] |
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