Looking back, his actions were truly egregious. But at the time — in 2001, when Homestore was at the top of the dot.coms — Joe Shew, the company’s CFO, couldn’t see that.
During USC Law’s inaugural “Conversations with the Dean” speaker series Oct. 12, Shew and attorney Bob Fairbank cautioned students to keep their moral compasses intact amid many pressures of the legal and corporate worlds.
Bob Fairbank, Dean Edward McCaffery, Joe Shew |
Shew pleaded guilty in 2002 to inflating Homestore.com’s revenues by millions of dollars in what is referred to as “round-trip” transactions, which flowed cash from Homestore through vendors and third-party advertisers, back to Homestore. The company then used the “revenue” from the round-trip transactions to meet Wall Street expectations.
“Here’s a guy of good quality, who worked at Disney and PriceWaterhouseCoopers before he worked at one of the top Internet companies of all time,” said Fairbank, Shew’s lawyer and a USC Law adjunct professor. “The point of this lecture is to say, don’t kid yourself, you could be in exactly this situation.”
Shew told USC Law Dean Edward McCaffery, students and faculty that he had always dreamed of a CNBC appearance related to his success as Homestore’s CFO — something to watch with pride.
Joe Shew speaks at the inaugural "Conversations with the Dean" |
“I was so embarrassed and so ashamed of what I’d done, I couldn’t even share it with my wife,” Shew said. “That day is something that I’ll always remember. I was working with the government for two to three months, and I didn’t tell my close friends, who were in the industry, that the announcement was coming until the day before.”
The Homestore case and other major corporate scandals, including Enron, WorldCom and Dynegy, are examined in Fairbank’s USC Law course, “The Enron Era: Lessons Learned.” (Because Enron is nearly resolved, the course name will be changed to “Major Corporate Civil and Criminal Fraud: Lessons of the Enron Era” when it is taught next, in spring 2007.) The behavior involved in each of those cases always was clearly wrong, Fairbank noted, not in a gray area.
“There’s not a case I’ve been involved in where you could objectively write it down and have it pass the red-face test,” he said.
Also on Oct. 12, Stuart Wolff, the former CEO of Homestore, was sentenced to 15 years in federal prison and ordered to pay a $5 million fine for his role in the round-tripping scheme.
In response to a question from Dean McCaffery, Fairbank said it has been uncommon for executives like Shew to admit their wrongdoing, but noted that former Enron CFO Andy Fastow recently was sentenced to just six years in prison after helping prosecutors build cases against former Chairman Kenneth Lay and former CEO Jeffrey Skilling.
“I predict we’re going to see more and more unusual approaches to resolving these cases,” Fairbank said, because people like Andy Fastow like to have this 800-pound rock off their shoulders.”
For his part, Shew said he finds that talking about his act of securities fraud is not only the right thing to do in business dealings, but also cathartic for him and a lesson for others.
“Even if just one person makes the right decision because I’m speaking out, it’ll make me proud like you wouldn’t believe,” Shew said.