Federal investigators examining possible accounting fraud at the online retailer Homestore.com and AOL Time Warner are now turning their attention to Peter Tafeen, a Homestore executive who worked closely with counterparts at AOL to devise complicated deals between the two companies, people involved in the inquiries said.
On Wednesday, the Department of Justice and the Securities and Exchange Commission said that three former Homestore executives had agreed to plead guilty to charges related to securities fraud and cooperate with the investigations. A copy of the complaint against the three executives charged that the crimes of the Homestore executives included arranging fraudulent "round-trip" transactions to inflate revenue by funneling the company's money back to itself through "a major media company."
AOL Time Warner was the only major media company that did business with Homestore. In a related inquiry, investigators are looking at the possibility that AOL used these and similar deals to inflate its own revenue.
Attorney General John Ashcroft made the announcement at a news conference in Washington to demonstrate the Justice Department's commitment to prosecuting corporate crime. Of the defendants, the former chief operating officer of Homestore, John Giesecke, faces a sentence of up to 10 years in prison; the former chief financial officer, Joseph Shew, faces up to five years; and a former finance executive, John Desimone, probably faces less, a Justice Department official said.
People involved in the Homestore inquiry said the investigators hoped to use the testimony of these Homestore executives to put pressure on Tafeen. Investigators hope that Tafeen will provide information about the complicity of AOL executives in the questionable deals.
Tafeen worked closely with AOL executives, including David Colburn and Eric Keller, both of whom were fired over their roles in questionable transactions, although people involved in the Homestore inquiry said investigators had also asked questions about the possible involvement of other senior AOL Time Warner executives.
Robert Friese, Tafeen's lawyer, acknowledged that investigators were looking at transactions in which Tafeen played a role.
"We are looking forward to hearing from the regulatory authorities exactly what they think he did wrong," he said. "Peter is not an accountant, and from a businessman's point of view he had valid explanations for the transactions we are aware of."
in denial
John Buckley, a spokesman for AOL Time Warner, said that the company's role in its transactions with Homestore and its accounting for those transactions were appropriate. He said the company was cooperating fully with the investigators.
A person involved in an internal investigation that AOL Time Warner is conducting into its books said the company was not aware of Homestore's questionable use of its transactions.
But two people involved in the federal investigation who had knowledge of the plea agreements said that the timing and details of the round-trip transactions appeared to require close coordination among all the parties involved, sometimes passing large sums of money through the hands of three companies in just a few days near the end of a quarter.
Still, one person involved said prosecutors would probably need testimony from other participants, like Tafeen, to build a case that anyone at AOL knew the nature of the transactions.
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