Beginning in December 2001, numerous separate complaints purporting to be class actions were filed in various jurisdictions alleging that Homestore and certain of its officers and directors violated certain provisions of the Securities Exchange Act of 1934. The complaints contain varying allegations, including that Homestore made materially false and misleading statements with respect to the Company's 2000 and 2001 financial results included in its filings with the SEC, analysts reports, press releases and media reports.
The original complaint alleges that Homestore and certain of its officers and directors violated the Securities Exchange Act of 1934. On July 19, 2000 (after the close of the market), Homestore issued a release of its positive 2Q 00 results, causing Homestore's stock price to soar by more than $7 (or 25%) the following trading day. The complaint further alleges that as part of their effort to boost the price of Homestore stock, defendants misrepresented Homestore's true prospects in an effort to conceal Homestore's improper acts until they were able to sell at least $16 million of their own Homestore stock. In order to overstate revenues and assets in 2Q 00, 3Q 00, 4Q 00, 1Q 01, 2Q 01 and 3Q 01, Homestore violated Generally Accepted Accounting Principles and SEC rules by engaging in improper "roundtrip" transactions. These transactions had the effect of dramatically overstating revenues and assets. This came to an end (though unbeknownst to the public) in the Company's 3Q 01 as the Company's main roundtrip partner stopped doing these transactions with the Company. Following the release of the Company's 3Q 01 results, the Company also slashed its revenue projections for 2002 from $563 million to$375-$425 million as a result of a material decline in its business with its main "roundtrip" partner. On this news the Company's shares dropped by more than 50% the following trading day. Then, on December 21, 2001 (after the close of the market), the Company partially admitted that its past accounting for its prior results was inaccurate. On this news the Company's shares were halted and have not traded since.
On March 27, 2002, the California State Teacher's Retirement System was named lead plaintiff and the complaints have been consolidated in the United States District Court, Central District of California. On July 31, 2002, the California State Teacher's Retirement System filed a consolidated amended class action complaint naming the Company along with MaxworldWide, Inc. (formerly L90, Inc.), PricewaterhouseCoopers LLP and certain former officers and employees of the Company and making various allegations, including that the Company violated federal securities laws. On September 20, 2002, the defendants filed various motions to dismiss the Consolidated Class Action Complaint. On November 15, 2002, the lead plaintiff filed a First Amended Consolidated Complaint, and on January 2003, the defendants responded by filing various motions to dismiss the First Amended Consolidated Class Action Complaint.
On March 7, 2003, the court dismissed, with prejudice, the Plaintiff's claims against a number of corporate and individual defendants whom the Plaintiff alleged either assisted in the planning and execution of the purportedly fraudulent transactions at issue, or who were parties to those transactions. Those defendants included MaxWorldwide, Inc., AOL Time Warner, Inc. and Cendant, among others. The court also dismissed, without prejudice, the Plaintiff's claims against a number of the Company's current and former officers and employees. With regard to those claims dismissed without prejudice, the Plaintiff has advised that it does not intend to amend the complaint. At the same time, the court denied the motions to dismiss of PricewaterhouseCoopers LLP and the Company's former chief executive officer. The Company did not file a motion to dismiss the Plaintiff's claims against it, but answered the complaint. Accordingly, the March 7, 2003 decision did not make any ruling with respect to the claims asserted against the Company.
On April 11, 2003, Judge Marsha J. Pechman dismissed defendant Privista Inc. with prejudice. On July 11, 2003, Judge Marsha J. Pechman denied the plaintiff’s motion for certification.
On August 13, 2003, Homestore announced that a settlement agreement was reached between Homestore and the California State Teachers' Retirement System (CalSTRS) to settle the consolidated class action lawsuit pending against Homestore in the U.S. District Court for the Central District of California. Under the settlement agreement, which is subject to court approval, Homestore will pay $13.0 million in cash and issue 20 million new shares of Homestore common stock to members of the class and will adopt certain corporate governance provisions designed to enhance shareholder interests. The $13.0 million cash portion of the settlement will be funded from Homestore's existing cash resources, and together with the common stock currently valued at $50.6 million (based on the closing market price on August 12, 2003), will result in a one-time litigation settlement charge of $63.6 million, which is reflected in the Company's June 30, 2003 financial statements. Homestore will place $10.0 million in escrow upon preliminary approval by the Court, with an additional $3.0 million due upon final judicial approval of the settlement. Following this approval, the $13.0 million and 20 million shares of newly issued common stock will be distributed to the class. The court and a hearing on final approval are not expected before December 2003.
On September 29, 2003, the Court granted the plaintiff’s renewed motion for class certification. On October 14, 2003, Judge Marsha J. Pechman granted preliminarily approved the partial settlement with defendant Homestore.com. In February 2004, certain defendants filed motions for summary judgment. On March 8, 2004, the Court granted a motion of entry judgment. On March 16, 2004, Judge Pechman granted the motion for final approval of the partial settlement with defendant Homestore.com. On April 7, 2004, the plaintiff filed a notice of appeal to the Ninth Circuit Court of Appeals as to the March 7, 2003 order dismissing the action against certain defendants. On May 11, 2004, Judge Pechman denied the motion for summary judgment. On August 10, 2004, Judge Pechman granted the motion for attorney fees and expenses. On August 20, 2004, the District Court entered the Order from the Ninth Circuit because the appeal was dismissed. On September 14, 2004, an individual defendant filed a motion for summary judgment, which was denied on October 8, 2004. On October 18, 2004, an individual defendant filed motions for partial summary judgment. On November 1, 2004, defendant Internet Pictures Corporation was dismissed with prejudice and on December 1, 2004, Defendant Classmates Online, Inc. was also dismissed.
On December 23, 2004, Judge Ronald S.W. Lew preliminarily approved the Stipulation of Settlement concerning the partial settlement with certain individual defendants. According to the Settlement, defendants Joseph J. Shew, John M. Giesecke, Jr., John D. DeSimone, Sophia Losh, Jeff Kalina have paid or caused to be paid into an escrow account, pursuant to the terms of their respective Stipulations of Settlement dated as of November 22, 2004 (the "Stipulations"), cash in the amount of $5,761,215 .64, which has been earning and will continue to earn interest for the benefit of the Class.
In a press release dated March 8, 2005, Homestore Inc. finalized a settlement for a $93 million class-action lawsuit filed against the company. The finalization came as a relief for Homestore, whose stock closed at a much more modest $2.36 on Monday. It will report its fourth-quarter and full-year earnings Wednesday. The California State Teachers Retirement System, which lost $9 million after investing in Homestore, settled the suit in August 2003. Homestore agreed to pay $13 million and issue 20 million shares of stock in reimbursement, valued at the time at $93 million. Objections of members of the class action delayed finalization of the suit after the court approved it in May 2004.
On April 14, 2005, Judge Ronald S.W. Lew signed the Amended Order adding an additional defendant David M. Rosenblatt to the settlement. The second partial settlement is now in the amount of $5,956,215.64 in cash.
On May 12, 2005, an individual defendant filed a motion for judgment on the pleadings which was denied on May 27, 2005. On June 6, 2005, the Court authorized the distribution of the settlement funds in the first partial settlement.
According to a press release dated July 1, 2005, PricewaterhouseCoopers agreed to pay $17.5 million to settle a class-action lawsuit brought by investors over the accounting firm's audits of Homestore.com Inc. in 2000 and 2001. PricewaterhouseCoopers didn't admit wrongdoing as part of the preliminary settlement, the California State Teachers' Retirement System, the lead plaintiff, said Thursday.
On August 16, 2005, Judge Ronald S.W. Lew preliminarily approved the third partial settlement with PricewaterhouseCoopers LLP.
On September 16, 2005, Judge Lew issued the Final Judgments and Orders of Dismissal as to the defendants in the second partial settlement $5,956,215.64 in cash.
On January 13, 2006, the Court entered the Final Judgment and Order of Dismissal, approving the third partial settlement with PricewaterhouseCoopers LLP.
According to the August 9, 2006, Chamber Minutes, the Court orders that the mandate of the Ninth Circuit Court of Appeals: affirmed and remanded for further proceedings consistent with opinion is hereby filed and spread upon the minutes of this district court. On January 10, 2007, the lead plaintiff filed a Second Amended Consolidated Complaint. In January 2007, the named defendants filed motions to dismiss the Second Amended Consolidated Complaint. On February 23, 2007, Judge Ronald S.W. Lew issued the Order to Show Cause. According to the Order, on December 18, 2006, this Court denied Plaintiff's Motion for Leave to File Second Amended Consolidated Complaint with regard to already dismissed Defendants AOL Time Warner, Eric Keller, David Colburn, Cendant Corporation, and Richard A. Smith. On March 11, 2007, Judge Lew issued an Order Directing Entry of Final Judgment to enter final judgment as to Cendant Corporation and Richard A Smith.
On August 6, 2007, the Court preliminarily approved a fourth partial settlement with defendants Time Warner, L90 and Peter B. Tafeen. The settlement fund is in the amount of $7,965,000.00 in cash. The settlement was approved on December 4, 2007.
On May 20, 2008, a stipulation of dismissal was filed dismissing defendant SmartHome, Inc. with prejudice.
On June 19, 2008, the lead plaintiff filed a motion for leave to file a Third Amended Consolidated Complaint.
On December 11, 2008, the Court preliminarily approved a fifth partial settlement with defendants Cendant and Richard A. Smith, in the amount of $4 million in cash. On March 16, 2009, the final hearing was held before Judge Ronald S.W. Lew granting final approval of the Class Settlement with Cendant and Richard A. Smith, approval of the plan of allocation, approval of the award of attorneys' fees and reimbursement of expenses, approval to distribute claims administration funds and approval of timing of distribution.
Jury Trial began on January 25, 2011.
According to a press release dated February 26, 2011, 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.
On March 17, 2011, the individual defendant filed a motion for judgment. On March 23, 2011, the defendant filed a renewed motion for judgment. This motion was denied on April 22, 2011.
