Homestore settles $23 million suit
The online real estate company will pay the money to former owners of iPlace, a consumer credit site it bought last fall and sold in pieces earlier this year.
Homestore will pay the money out of a $58 million trust it set up per court order last spring. Some $19.2 million of the settlement will go to online marketing company MemberWorks, which led the suit.
MemberWorks sued Homestore in March, seeking to block Homestore's sale of its consumer credit Web site ConsumerInfo.com. Homestore acquired ConsumerInfo when it bought iPlace, of which MemberWorks was the majority owner, last year.
Homestore sold the other piece of iPlace, eNeighborhoods, in February back to its original founders.
Separately, Homestore reported on Monday that it lost $52.3 million, or 44 cents per share, on $65.9 million in revenue during the second quarter. During the same period last year, the company lost $120.9 million, or $1.12 per share, on $77.7 million in revenue.
The company's loss reflected the $23 million it paid to settle the suit, as well as a $10 million gain from the sale of ConsumerInfo.
MemberWorks' suit stemmed from the freefall of Homestore's stock in December and January after the online real estate company announced an inquiry into its financial statements. The inquiry eventually led the company to restate its revenue for 2000 and the first nine months of 2001. Homestore paid for much of the iPlace transaction in stock and as its stock fell, so too did the value of the deal for the former iPlace owners.
In its suit, MemberWorks charged Homestore with securities fraud, unfair trade practices and negligent misrepresentation.
Despite the charges, the judge in the case allowed Homestore to complete its sale of ConsumerInfo to Experian in April for about $130 million in cash. However, the court ordered Homestore to set aside $58 million of that amount pending the outcome of the case.
MemberWorks will receive about $19.2 million from the settlement. As part of the sale of iPlace, MemberWorks received about $52 million in cash and 1.6 million shares of stock, which were worth about $36 million at the time. Those shares are now worth about $1.4 million.
The settlement, which still needs to be approved by the U.S. District Court for Connecticut, is good for MemberWorks and its shareholders, said company spokesman George Thomas.
"We thought it was an attractive number to settle the case," said George Thomas, spokesman for MemberWorks.
For Homestore, the settlement will free up some $35 million of cash that it had set aside to pay for a possible judgment. The settlement will help the company focus on its operations, company representatives said.
"We determined that an expedited settlement of this case was in the interest of Homestore's customers, employees and shareholders," said Mike Long, Homestore's chief executive officer, in a statement.
Despite the settlement, Homestore still faces a host of legal problems. The Securities and Exchange Commission has launched a formal investigation into the company's accounting practices, Homestore said in a regulatory filing. In addition, the California State Teacher's Retirement System is leading a lawsuit filed against Homestore on behalf of shareholders, charging the company with making materially false and misleading statements about its financial results.
Last month, Homestore agreed to settle its suit against Bargain Network. Homestore had charged Bargain Network with trespassing by combing its Realtor.com site for real estate listings.