Pricewaterhouse Coopers agreed to pay $17.5 million to settle a class-action lawsuit alleging it neglected its responsibilities in failing to catch rampant accounting irregularities at Homestore.com in 2000 and 2002.
The preliminary settlement, reached with lead plaintiff the California State Teachers’ Retirement System, was submitted on Thursday to U.S. District Court Judge Ronald S. W. Lew of Los Angeles for review. In agreeing to the settlement, PricewaterhouseCoopers did not admit to any wrongdoing.
CalSTRS filed suit in November 2002 against Homestore.com, several of its officers and PricewaterhouseCoopers on accusations of insider trading, falsifying books and violating securities laws in an effort to meet Wall Street expectations.
In August 2003, Homestore.com settled the case, agreeing to reform its corporate policies, pay $13 million in cash to shareholders and turn over 20 million shares of stock. The stock was valued at about $4 a share at the time of the settlement.
All but two of the company officers named in the suit pleaded guilty to criminal charges or agreed to cooperate with the government, leaving legal action pending against Stuart H. Wolff, former chief executive officer and chairman of the board; and Peter B. Tafeen, former executive vice president of business development.
On March 28, Wolff and Tafeen were indicted by a federal grand jury on multiple charges. The indictments of Wolff, who headed Homestore from 1997 until his resignation in January 2002, and Tafeen ended one of the largest criminal investigations of a Los Angeles corporation. Each executive is facing 19 criminal counts, with a possible maximum sentence of 185 years in federal prison, on charges of inflating company revenues and misleading investors and analysts about the company’s financial condition.
The Securities and Exchange Commission also filed a civil lawsuit against Wolff and Tafeen for violations of reporting, record-keeping and internal controls regulations and for lying to auditors.
CalSTRS estimated its Homestore losses in excess of $9 million on its investment in Homestore. As lead plaintiff, CalSTRS represented the claims of all the shareholders and contracted for legal representation.
