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U.S. Confirms Homestore Pleas

Updated from 9:08 a.m. EDT



Three former executives of Homestore.com (HOMS) will plead guilty to criminal fraud charges related to questionable bookkeeping at the Web site, in a move that could have implications for AOL Time Warner (AOL - Get Report).

The ex-chief financial officer, chief operating officer and a director of finance for Homestore will plead guilty to a variety of charges and to cooperate with the government's investigation into Homestore and its business partners, federal officials said.

Former chief operating officer John Giesecke and former chief financial officer Joseph Shew will be charged with conspiracy to commit securities fraud in a criminal information to be filed in Los Angeles. The information will also charge Giesecke with wire fraud and former vice president John DeSimone with insider trading, officials said.

The Wall Street Journal cited people familiar with the plea bargain who say the executives will claim Homestore paid about $50 million to third-party companies for software and other goods in early 2001, then allegedly required those companies to buy about $45 million of ads from AOL. Since AOL had promised to buy ads on Homestore if Homestore referred advertisers to AOL, the company was then able to recognize more than $35 million in revenue from AOL -- essentially converting cash on its balance sheet into revenue, a violation of generally accepted accounting.

America Online says it's cooperating with investigators and wouldn't comment further. America Online's accounting for certain advertising transactions is under investigation by the Securities and Exchange Commission and the U.S. attorney's office in Alexandria, Va.

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