But CalSTRS and Fineman persevered. Between 2003 and 2008 they reached about $100 million in settlements with Homestore, auditor PricewaterhouseCoopers, former Homestore executives, and AOL and Cendant, which the class accused of facilitating Homestore’s allegedly fraudulent deal accounting. By the end of 2008, only one defendant remained in the securities class action: former Homestore CEO Stuart Wolff.
And by of the end of 2010, Wolff had already acknowledged wrongdoing in the Homestore accounting scandal. Last April Wolff agreed to plead guilty to criminal conspiracy charges and received a four-and-a-half-year prison sentence. In December, Wolff reached a settlement with the Securities and Exchange Commission in which he agreed to pay $11.9 million in restitution to Homestore’s shareholders.
Nevertheless, Fineman and her client never considered abandoning the securities class action case against Wolff. “We were determined to make sure a message was sent,” Fineman told us. “We had to send the signal that CEOs are responsible for what they do.”
On Feb. 24, a Los Angeles federal district court jury delivered Fineman’s message. After a 10-day trial, the nine jurors found Wolff liable for allegedly false statements in Homestore’s 2001 press releases and SEC filings. The verdict is the third trial win for securities class action plaintiffs (in three tries) in the last 13 months.
Fineman told us the verdict against Wolff was no sure thing, despite his guilty plea in the criminal case. Wolff, who is serving his sentence at the Lompoc Prison, testified on his own behalf at the securities trial, downplaying his responsibility for the allegedly false statements. And, indeed, the jury found the former CEO wasn’t responsible for any allegedly fraudulent Homestore statements in 2000. But they also found he was liable under both the 10b-5 and control person theories Fineman presented for false statements in 2001. (Here’s the extremely complex 16-page jury verdict form.) The jury awarded shareholders 22 cents per share for some of Wolff’s fraudulent statements and 66 cents a share for others.
Pinning a dollar figure to Wolff’s liability under the jury’s findings is turning out to be no easy task (which, given the difficulty of getting the case to trial, shouldn’t be a surprise). Cotchett Pitre’s experts have been parsing the verdict form since last Thursday, trying to assess Wolff’s liability in relation to the liability of defendants that have already settled with the class. There’s also the question of whether any damages award should be offset by Wolff’s $11.9 million SEC restitution; neither side addressed that issue before the trial. Los Angeles federal district court judge Ronald Lew will eventually consider both sides’ interpretations of the jury verdict before entering any judgment.
In the meantime, Fineman is hailing CalSTRS for sticking with a case that’s nine years old–and counting. “They’ve been with us every step of the way,” she said. “I have to give kudos to them for standing up and really pushing this.”