eter Tafeen, the former deal maker for Homestore.com and now a central figure in investigations of accounting at AOL Time Warner, sometimes boasted that his ruthless approach to business earned him the nickname "the Piranha."
In late spring of 2000, for example, he handed executives of the Internet start-up ServiceLane.com a list of terms for a proposed deal under the headline Project Hammer, telling them that their company could not survive without Homestore, ServiceLane's chief executive, Lee Blaylock, recalled yesterday.
But the proposal called for Homestore to invest in ServiceLane and almost immediately get half its money back as payment for advertising on Homestore, Mr. Blaylock said. He said he concluded that ads on Homestore were ineffective, and that Homestore was trying to inflate its revenue by recycling much of its investment back to itself, a practice known as round-tripping. So he turned it down, he said.
Now Homestore's piranha may play a decisive role in the course of two federal investigations, one into his company and one into AOL Time Warner. On Wednesday, three former Homestore executives agreed to plead guilty to covering up or trading on information about fraudulent round-trip deals that they say Mr. Tafeen negotiated, including some with AOL Time Warner. The three are now cooperating with prosecutors.
With their testimony, these people said, the Securities and Exchange Commission and the Justice Department hope to press Mr. Tafeen, who might help them build a case against Homestore's founder and former chief executive, Stuart H. Wolff, and to determine any degree of complicity of various executives of AOL Time Warner.
John Buckley, a spokesman for AOL Time Warner, said that the company accounted properly for all its deals with Homestore. Robert Friese, Mr. Tafeen's lawyer, said he was looking forward to meeting with regulators "to hear what they think he did wrong and why they think he should have known it was wrong," adding, "We have been cooperative from the first call from the S.E.C."
Mr. Friese noted that Mr. Tafeen was a businessman, not an accountant, and not responsible for Home- store's financial reports.
But Mr. Friese also confirmed that Mr. Tafeen knew plenty about Home- store's dealings with America Online. "There is no question that he had dealings with several people at AOL," he said.
Homestore's contributions to America Online were "a big deal," he said. Executives from the two companies "were trying to build a close relationship," and at one point Homestore was considered a possible merger partner of AOL.
Mr. Tafeen was also extremely close to Homestore's founder, Mr. Wolff, with the two often preparing plans together privately before revealing them to other executives and frequently speaking by telephone at all hours of the night, people involved in the plea agreements said.
"We share the same ideals," Mr. Tafeen told the trade magazine Realty Times in January 2000. "We care about winning and greatness. When you find people who are alike that way, you tend to gravitate toward each other."
Mr. Wolff, who left Homestore at the beginning of this year, could not be reached for comment.
In 1996, Mr. Tafeen, then 27, was Mr. Wolff's first hire at the company, initially known as Realtor.com, and he became vice president for business development. Mr. Wolff had become interested in real estate while working for the cable television company Tele-Communications Inc. Mr. Tafeen had previously worked as a director for business development at another Internet company, PointCast, and as an executive at the Gartner and Meridian consulting companies.
They started the company with $6 million, buying the rights to provide free real estate listings, and then charging brokers and others to advertise. But as the Internet boom took hold, they expanded into fields like gardening and home decorating. By January 2000, the company's market value had grown to more than $6 billion.
Friends of Mr. Tafeen dismissed his piranha comment as a young salesman's lighthearted boast. But his sense of confidence also increased with the company's stock price, people who worked with him and others involved in the investigation said. "I don't believe in balance," he told Realty Times, describing his long hours. "In order to win, you have to give 150 percent."
He developed what the other executives who are cooperating called an abrasive style, people involved in the investigation said. Several people who did business with him said he acquired a reputation for speaking in meetings or negotiations and then leaving before listening to the response. "He had stock market hubris," Mr. Blaylock recalled.
In the spring of 2000, however, business became more difficult for Homestore and many other online companies. The Internet stock bubble began to collapse and the S.E.C. imposed a new rule limiting barter transactions. Many Internet companies used barter to increase revenue by trading advertising at inflated values and booking those values as sales.
The other Homestore executives cooperating with prosecutors contend that Mr. Tafeen bridled at these restrictions, people involved in the investigation said. When finance executives interfered with some of his plans, he came back with revised arrangements to circumvent the rules, these people said. Prosecutors plan to argue that to avoid the appearance of simply swapping advertising or other goods at inflated values, Mr. Tafeen began involving third-party intermediaries in three-way swaps, including some with America Online. Those swaps helped Homestore's revenue continue to rise after most other companies dependent on Internet advertising began to deflate.
In response to the allegations, Mr. Friese, Mr. Tafeen's lawyer, said his client never tried to do anything without the approval of the company's finance and accounting departments. "If there was an approach that didn't pass muster, he dropped it," he said.
Mr. Tafeen made Homestore's first deal with America Online in 1998, but the companies expanded it substantially in May 2000, striking a $200 million five-year deal for Homestore to run a new home channel on the AOL service.
People involved in the investigation of Homestore said that Mr. Tafeen worked closely with Eric Keller, an executive in AOL's business affairs department, and David M. Colburn, his boss.
The first signs of improper deals between the companies emerged about a year later, a person involved in an internal investigation at AOL Time Warner said. AOL had acquired Time Warner in January 2001, and Joseph Ripp, previously chief financial officer at Time Inc., had taken over that role at the AOL division.
The person involved in the internal investigation said that in April 2001 Mr. Ripp noticed that Mr. Keller had tried to backdate a deal with the online advertising company PurchasePro so that it would add to first-quarter results.
In June, the company placed Mr. Keller on administrative leave while it investigated his other deals, including some with Homestore, this person said. AOL had agreements to sell advertisements on behalf of both companies, and the company concluded that Mr. Keller made side deals to direct more advertisements to each of them if they spent more to advertise on AOL — a potential for accounting abuse because it might allow the companies to recycle revenue back and forth. In August, AOL fired Mr. Keller. Homestore discovered its accounting problems in December 2001.
People involved in the investigations have said that prosecutors are looking into the possible involvement in these and other questionable deals of other executives from AOL, including Mr. Colburn. The company later fired Mr. Colburn in connection with his involvement in other potentially improper deals.
In January, Homestore fired Mr. Tafeen and Mr. Wolff and hired new management. Homestore stock, which once traded above $100 a share, now trades below $1.
In announcing the plea agreements this week, the Justice Department and the S.E.C. commended Homestore's board for its cooperation and said they would not pursue charges against the company.
Homestore's former chief operating officer, John Giesecke, and its former chief financial officer, Joseph Shew, both pleaded guilty to securities fraud. Jan L. Handzlik, a lawyer for Mr. Giesecke, and Terry Bird, a lawyer for Mr. Shew, said that their clients were cooperating with federal investigators. John D. Vandevelde, a lawyer for John DeSimone, a former finance executive who pleaded guilty to insider trading, said that superiors ordered Mr. DeSimone to assist in fraudulent round trip transactions but that he then sought a transfer to another department and was now cooperating with investigators.
AOL Time Warner has also said that it is cooperating fully with federal investigators and that it sought to expel executives connected to accounting problems. But, in a potential embarrassment to the company, after it put Mr. Keller on leave, Ted Leonsis, vice chairman of America Online, hired him as a consultant on a real estate transaction for his hockey team, the Washington Capitals, a person close to Mr. Leonsis said. Mr. Leonsis did not fire Mr. Keller until this August, a person close to Mr. Leonsis said. A person close to Mr. Leonsis said he was unaware of the details of Mr. Keller's dismissal.
Roger Spaeder, a lawyer for Mr. Colburn, declined to comment. Mr. Keller could not be reached for comment.
