The lawsuit against locally based Homestore.com was filed yesterday in the US District Court of Central California by lawyers representing some investors in Homestore.com's stock. The stock, which traded as high as $37.25 a share in the past year, was selling for about $3.50 before the Nasdaq exchange halted trading in its securities after last Friday's closing bell pending receipt of more information about the company's plans to restate earnings.
The complaint alleges that Homestore.com Chairman and CEO Stuart H. Wolff, EVP of Business Development and Sales Peter B. Tafeen and former CFO Joseph J. Shew "misrepresented Homestore's true prospects in an effort to conceal Homestore's improper acts until they were able to sell $27.9 million worth of their own Homestore stock." It also alleges that the company entered into several questionable transactions to inflate its earnings in the first three quarters of last year and the first three quarters of 2001.
Shew resigned from his post earlier this month for what he and the company said were personal reasons. He had taken the job in February.
The lawsuit was filed by the law firm of Milberg Weiss Bershad Hynes & Lerach LLP, which has successfully pursued several class-action suits in the past. The 170-lawyer firm has offices in several West Coast cities, as well as in New York and Philadelphia.
The suit seeks to recover damages on behalf of investors who purchased Homestore.com common stock during the class period.
Homestore.com in October announced plans to lay off about 700 workers—roughly 20% of its workforce—and also said that its earnings would fall below analysts' expectations. In November, it reported a $106-million third-quarter loss and said its advertising revenue had plunged 44% from the previous quarter.
Though Homestore.com offers a limited amount of investment-property listings, it was primarily formed about four years ago to market homes and residential real estate services over the worldwide web. It quickly garnered about 95% of all US home listings and continued to report strong revenue growth into the first half of this year, long after several other dot-com companies had gone out of business.
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