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The complaint argues that the transactions were an accounting abuse known as round tripping, an exchange of bogus sales to inflate revenue. By adding a third company as intermediary, Mr. Tafeen and Mr. Keller were able to hide the bogus nature of the transactions from Homestore's accountants, PricewaterhouseCoopers.
In the first quarter of 2001, Mr. Tafeen proposed that AOL Time Warner acquire Homestore, a prospect that would have erased the roundtrip deals, the complaint says. Homestore executives hired Morgan Stanely and met with AOL Time Warner executives in New York, but the deal fell through.
In the second quarter, Mr. Tafeen and Mr. Keller agreed to a similar three-way deal that was to generate $31.5 million for Homestore and $8 million in commissions for AOL. That spring, however, AOL Time Warner suspended Mr. Keller for his role in questionable transactions with another small Internet company. (AOL did not remove Mr. Colburn until last August.)
After Mr. Keller left, Mr. Tafeen and the other Homestore executives negotiated with Joseph A. Ripp, the former chief financial officer of the Time Inc. unit of AOL Time Warner who had moved to AOL after the merger, and Steven E. Rindner, executive vice president for business affairs, according to the complaint.
Mr. Ripp and Mr. Rindner first balked at the deals, according to the complaint. It describes a tense conference call with Mr. Tafeen and other top Homestore executives on June 29, 2001, the last day of the quarter. Mr. Ripp and Mr. Rindner pushed for increased documentation about the deals. But executives of Homestore, worried that the documentation would have called attention to their three-way arrangements, persuaded Mr. Ripp and Mr. Rindner to accept a compromise that did not expose the deals.
People involved in the federal investigations into Homestore's accounting said prosecutors had presented Mr. Tafeen with their evidence against him, in the hope of persuading him to agree to plead guilty and offer them new information, including evidence about his counterparts at AOL Time Warner. His lawyer, Robert Friese, declined to comment on specific talks.
The three former Homestore executives who have reached plea bargains are John Giesecke, Joseph Shew and John DeSimone. Jan L. Handzlik, a lawyer for Mr. Giesecke; Terry Bird, a lawyer for Mr. Shew; and John D. Vandevelde, a lawyer for Mr. DeSimone, said their clients were eager to help shareholders harmed by fraud at Homestore.
The complaint was filed by the law firm of Cotchett, Pitre, Simon & McCarthy, which declined to comment.
