SEC Says Homestore's 'Round-Trips' Were Fraudulent

The U.S. Securities and Exchange Commission (SEC) filed charges against three former executives of Homestore Inc. for arranging fraudulent "round-trip" barter transactions involving online advertising.

The SEC's complaint explains that online advertisements were a major source of revenue for Homestore, and that the company engaged in sham transactions related to advertising to meet Wall Street estimates. Management covered up by lying to the company's auditors PricewaterhouseCoopers.

In effect, the sham transactions allowed Homestore to recognize its own cash as revenue. This circular flow of funds began when the company paid inflated sums to certain vendors. The vendors used the proceeds to buy advertising from two media companies, who in turn bought advertising from Homestore. When it received the funds back from the media companies, Homestore recorded them as revenue.

In related proceedings, one of the former executives agreed to plead guilty to one count of conspiracy to commit securities fraud and one of wire fraud. Another agreed to one count of conspiracy, and the third agreed to one count of insider trading. They face prison terms of between 5 and 10 years, depending on the charges. As part of their plea agreements, all three have agreed to cooperate with the SEC and the criminal authorities.

The press reported that Homestore had entered into an agreement with AOL Time Warner's America Online unit, and there is speculation that the case could have implications for the government's continuing investigation of accounting practices by that unit.

-Rosemary Schlank

You may like these other stories...

A proposal issued by the Governmental Accounting Standards Board (GASB) last week explains how fair value measurement should be defined for state and local government financial reporting.The exposure draft, Fair Value...
By Jason Bramwell The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what...
By Jason Bramwell The Governmental Accounting Standards Board (GASB) is now offering a free online toolkit designed to assist preparers and auditors of state and local government pension plans with implementing new...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30
Many Excel users have a love-hate relationship with workbook links. For the uninitiated, workbook links allow you to connect one Microsoft Excel spreadsheet to other spreadsheets, Word documents, databases, and even web pages.