Shares of Internet marketer Intermix Media Inc. continued to plummet last week when New York Attorney General Eliot Spitzer filed suit against the Los Angeles-based company for peddling alleged "spyware."

Intermix shares fell 17.3 percent to $3.97 on April 28, the day the suit was filed. They had already taken a beating earlier in the month, after the company first disclosed Spitzer's interest in its online practices. Since March 4, the price has fallen by 56.8 percent.

Spitzer's lawsuit alleges false advertising and deceptive business practices, alleging that Intermix's applications redirect computer users to unwanted Web sites for advertising purposes and add unwanted toolbar items and pop-ups that stall computers and aggravate users. The attorney general's office had been investigating the L.A.-based company for six months.

Some of the applications arose from the company's prior incarnation as eUniverse Inc., a scandal-ridden company that was de-listed from the Nasdaq in 2003 due to faulty accounting. The current chief executive, Richard Rosenblatt, took over in 2004 and changed the company's name. The company has also been phasing out the objectionable applications and halted downloads in early April.

Still, investors weren't assuaged. "After I spoke with the company (about the inquiry), I didn't feel comfortable," said Frank Husic, chief investment officer of San Francisco-based Husic Capital Management. Husic sold all of its more than 85,000 shares in the week following the company's initial announcement. "It didn't feel like a non-event to me."

Husic said that while he was impressed by the company's quarterly results, there was something about the way the executives downplayed the inquiry that made him lose confidence in company management.

"I just didn't feel the company's response had any credibility," he said. "It was more like 'don't worry, be happy,' and that just didn't sit well with me."

Intermix released a statement last week from Vice President and General Counsel Christopher Lipp, reiterating the company's position that it does not promote or condone spyware. Lipp insisted that the products involved in Spitzer's investigation are no longer part of the company's business model.

But investors like Husic aren't interested in waiting. "As far as I'm concerned, the case is closed," he said. "I'm not going to invest in the company."
Hilary Potkewitz

Venture Capital Falls
Venture capital activity in Southern California fell 40 percent in the first quarter to $371 million, a sign investors in early-stage companies pulled back as the overall economy lost steam.

Venture capitalists invested in just 34 deals in Southern California in the first quarter 13 each in Los Angeles and San Diego and eight in Orange County compared with 51 deals in the first quarter of 2004, according to a report released last week by accounting firm Ernst & Young and VentureOne, a unit of Dow Jones & Co.

Several sectors posted significant declines, led by health care companies, with a 39 percent drop in overall funding in Southern California, the report stated.

Early-stage investments had been on an upward trend last year, with strengths in communications and Internet start-ups. But the report noted that first-quarter activity tends to be slow because venture capitalists tend to focus on fund-raising in the first quarter, not investments.
Kate Berry

Homestore Charges
Former Homestore Inc. Chairman and Chief Executive Stuart Wolff and another former Homestore executive were indicted by a federal grand jury last week on multiple charges of insider trading, falsifying books and violating securities laws.

The indictments of Wolff, who headed the Westlake Village-based provider of online real estate information from 1997 until resigning in January 2002, and Peter Tafeen, the company's former executive vice president of business development, culminate one of the largest criminal investigations of a Los Angeles corporation.

Each executive faces 19 criminal counts with a possible maximum sentence of 185 years in federal prison, according to the U.S. Attorney's Office in Los Angeles.

"The investigation, which has now reached the company's CEO, went up the ladder to expose coordinated corruption across a broad spectrum," said U.S. Attorney Debra Yang, in a statement.

All of the other nine defendants pleaded guilty to criminal charges or agreed to cooperate with the government.

Prosecutors allege that Tafeen orchestrated the fraud scheme to create "round-trip" transactions, which inflated the company's revenues but were concealed from auditors. Wolff allegedly misled investors and analysts about the company's financial condition when he blamed losses on the Sept. 11, 2001, terrorist attacks. Both executives exercised millions of dollars in stock options as part of the fraud, the government alleges.
Amanda Bronstad

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