UNITED STATES OF AMERICA
| ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Adam S. Richards ("Respondent" or "Richards") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.1
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.3. below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds that:
1. Richards, age 34, is a resident of Oak Park, California. In June 2000, Richards joined Homestore, Inc. ("Homestore") as a Senior Analyst and was promoted to Manager of Financial Planning in February 2001. As a manager, he reported to the Director of Financial Planning. During 2001, Richards managed the forecasting for the Strategic Alliances Group ("SAG") and served as a point person for providing a finance perspective on the various SAG deals. Richards is a CPA licensed in California, however his license was inactive during his tenure at Homestore.
2. Homestore is, and at all relevant times was, a Delaware corporation with its principal place of business in Westlake Village, California. Homestore is an Internet provider of residential real estate listings and related content. Homestore's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and trades on the Nasdaq SmallCap Market.
3. On September 18, 2003, the Commission filed a complaint against Richards in SEC v. Sophia Kabler, et al., in the United States District Court for the Central District of California (the "Court") (Civil Action No. 03-6726 JFW (VBKx)). On September 24, 2003, the Court entered a Final Judgment of Permanent Injunction and Other Relief Against Defendant Adam S. Richards ("Judgment") which (a) permanently enjoins Richards from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; and (b) orders Richards to pay $1,770 in disgorgement, $124 in prejudgment interest, and a $10,000 civil penalty. Richards consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint.
4. The Commission alleged that Richards participated in a fraudulent scheme to inflate Homestore's revenue throughout the first three quarters of 2001. The complaint alleged that Homestore engaged in round-trip sales transactions that were improperly recognized as revenue. Specifically, Homestore, through Richards and others, overstated revenue in the first quarter by $15,000,000, or 16%, by $22,445,000, or 21%, in the second quarter, and by $8,965,000, or 8%, in the third quarter. The complaint further alleged that Richards helped implement the scheme and took steps to hide the true nature of these round-trip transactions from Homestore's auditors.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Richards's Offer.
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
Richards is suspended from appearing or practicing before the Commission as an accountant.
Jonathan G. Katz
1 Rule 102(e)(3)(i) provides, in relevant part, that:
The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.
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