AOL’s Homestore Connection Under Scrutiny

By @NY Staff

America Online’s third-party deals with real estate portal Homestore.com Inc. have drawn the ire of the California State Teachers’ Retirement System, which filed a lawsuit that further puts AOL’s accounting procedures under the microscope.

According to a report in Monday’s Wall Street Journal, the public pension fund — which lost approximately $9 million on Homestore shares — filed suit in a Los Angeles district court, accusing Homestore of padding revenues through complicated third-party transactions with AOL .

News of the pension fund’s lawsuit comes on the heels of high-level investigations by the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) into accounting practices that include the ISP’s past dealings with PurchasePro, a B2B software firm.

PurchasePro has confirmed federal regulators have contacted the company about its former business relationship with AOL Time Warner. The Justice Department is taking part in the SEC probe, although analysts and experts note that the DoJ’s participation in the SEC investigation is routine.

The Journal report said the SEC is looking into a “series of unconventional transactions that occurred in 2000 and 2001, which were highlighted in a series of Washington Post articles last month.”

At issue, for example, is whether the company’s Virginia-based online division improperly booked revenue from some of its dot-com partners. AOL insists the accounting procedure was appropriate and above board.

The latest lawsuit from the California pension fund does not name AOL as a defendant but there are claims AOL was a party to the alleged illegal transactions.

Homestore, which operates the Realtor.com, HomeBuilder.com, Rent.net and Homestore.com Web sites, has also been under SEC scrutiny since January this year.