U.S. Securities and Exchange Commission
Litigation Release No. 18880 / September 10, 2004
Accounting and Auditing Enforcement Release No. 2095 / September 10, 2004
SEC v. Clayton Chan, Gregory Antoniono and Geoffrey Infeld (U.S. District Court for the Central District of California, Civil Action No. CV 04-07435 JSL (FMOx)
SEC AND UNITED STATES ATTORNEY CHARGE TWO MORE INDIVIDUALS FOR THEIR ROLE IN HOMESTORE'S FRAUDULENT SCHEME INVOLVING ROUND-TRIP TRANSACTIONS
SEC additionally files a settled action against a former Homestore manager for fraudulently assisting in inflating Homestore's advertising revenue
The United States Securities and Exchange Commission, the United States Attorney's Office for the Central District of California, and the Federal Bureau of Investigation announced yesterday that a former senior vice president of Homestore, Inc. and the owner of several Homestore vendors have agreed to plead guilty to criminal charges and to settle civil fraud charges for their roles in Homestore's scheme to inflate advertising revenues through fraudulent round-trip transactions in 2001. The SEC also charged a former manager of Homestore for assisting in the fraudulent scheme. Homestore, Inc. is a Westlake Village, Calif. company that provides real estate listings and related services on the Internet.
With these charges, the SEC has sued a total of 14 individuals for their roles in the scheme, nine of whom have been criminally charged by the United States Attorney in Los Angeles.
The SEC's civil complaint and the United States Attorney's criminal informations, filed yesterday in United States District Court in Los Angeles, charge the following two defendants.
In addition, the SEC's civil complaint also charges the following defendant, who is not named in the criminal case:
The civil and criminal actions allege that the defendants participated in or assisted in negotiating, implementing and executing the fraudulent "round-trip" transactions. The purpose of these transactions was to artificially inflate Homestore's on-line advertising revenues. All of the defendants knew that the essence of these transactions was a circular flow of money by which Homestore recognized its own cash as revenue. Chan and Antoniono took steps to conceal the round-trip nature of the transactions from Homestore's auditors. Infeld used his companies as intermediaries in the round-trip transactions, knowing that Homestore's revenues would be inflated as a result.
The SEC charged Chan with violating numerous provisions of the federal securities laws, including the antifraud provisions, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; record-keeping provisions, Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder; internal controls provisions, Section 13(b)(5) of the Exchange Act; and lying to the auditors provisions, Rule 13b2-2 under the Exchange Act. Antoniono and Infeld were charged with aiding and abetting Homestore or Homestore management's violations of the above provisions. Additionally, the SEC alleged that Chan violated Section 17(a) of the Securities Act of 1933.
The United States Attorney's Office's criminal action, based upon a joint investigation by the SEC, United States Attorney's Office and FBI, charges Clayton Chan with one count of securities fraud in violation of Title 15, United States Code, Sections 78j(b) and 78ff, and Title 17, Code of Federal Regulations, Section 240.10b-5 and Geoffrey Infeld with one count of wire fraud in violation of Title 18, United States Code, Section 1343.
The Settlements and Guilty Pleas
Chan and Infeld have agreed to settle the SEC's lawsuit, to plead guilty to the criminal charges, and to cooperate with the government in its ongoing investigations. Antoniono has agreed to settle the SEC's lawsuit. All three defendants settled the SEC lawsuit without admitting or denying the allegations, simultaneously with the filing of the complaint.
In the SEC case, Chan will be enjoined from committing future violations of the charged federal securities laws, will repay $179,124 in profits from his exercise of Homestore stock options and commissions he earned during the fraud, plus interest, and will pay a $50,000 civil penalty. Chan will also be barred from serving as an officer or director of a public company for a period of ten years. In the criminal action, Chan will plead guilty to securities fraud, carrying a maximum sentence of ten years.
In the SEC case, Infeld will be enjoined from committing future violations of the charged federal securities laws, will repay $17,400 representing profits from the fraudulent transaction with Homestore, plus interest, and will pay a civil penalty of $35,000. In the criminal case, Infeld has agreed to plead guilty to one count of wire fraud and faces up to five years in prison.
As part of his SEC settlement, Antoniono will be enjoined from committing future violations of the charged federal securities laws, will repay $69,013 in profits from his exercise of Homestore stock options, plus interest, and will pay a civil penalty of $25,000.
The civil case is the product of an ongoing investigation by the SEC. The criminal investigation by the Federal Bureau of Investigation is also ongoing.