MemberWorks Sues Homestore
MemberWorks is accusing Homestore of securities fraud, common law fraud, negligent misrepresentation, unjust enrichment, violation of the Connecticut Unfair Trade Practices Act and breach of contract.
MemberWorks is seeking unspecified damages from Homestore, Westlake Village, CA, and a court order to prevent Homestore from selling any of iPlace's assets, a property Homestore bought from MemberWorks in August. IPlace, Langhorne, PA, provides credit and neighborhood information to real estate professionals and consumers.
According to MemberWorks, it has watched Homestore's stock plummet 95 percent in the months since it sold iPlace to Homestore in a cash and stock transaction, and has been prevented from selling the stock because Homestore failed to register the deal with the Securities and Exchange Commission.
A "substantial" portion of what Homestore paid for iPlace was in the form of stock, which was valued at $22 per share, or $36 million, on Aug. 24 when the deal was done, according to a statement from MemberWorks, Stamford, CT.
Homestore was supposed to register the transaction with the SEC before Dec. 22, MemberWorks claims. On Dec. 21, however, Homestore announced it would have to restate some of its earnings and, according to MemberWorks, never made the required filing. As a result, MemberWorks has been unable to sell its shares in Homestore, the company said.
Homestore's shares were trading at $1.16 late in the session yesterday.
Homestore in January said it overstated advertising revenue from January to September 2001 by $54 million to $95 million, according to preliminary results of an internal accounting audit. At that time, it also said that it might have to restate its earnings for 2000 as well.
Last month, the company narrowed its original estimation of overstated ad revenue for the first three quarters of 2001 to between $76 million and $82 million. However, Homestore stated that non-advertising revenue has been overstated by $28 million to $31 million for that period, but that $7 million to $23 million of the non-advertising revenue, primarily in software and services, may be booked as deferred revenue for future periods.
Last month, Homestore said it will reduce its revenue for 2000 by $39 million to $45 million.
Both MemberWorks and Homestore declined comment.