DISTRICT COURT SUSTAINS SECURITIES COMPLAINT AGAINST MERRILL LYNCH & CO. AND HOMESTORE'S FORMER CHIEF EXECUTIVE OFFICER

November 1, 2004
Myers, et al. v. Homestore, Inc., et al., No. BC312115 slip. op. (Oct. 27, 2004).

In this important case, thought to be the first of its kind, Hon. Thomas L. Willhite, Jr. upheld plaintiffs' California state law claims against Homestore's former Chief Executive Officer, and its former investment banker, Merrill Lynch & Co. Homestore did not seek a demurrer.

In March 2000, plaintiffs sold their company to Homestore in exchange for restricted stock. Plaintiffs allege that Homestore breached its representations and warranties, Homestore's former Chief Executive Officer proffered negligent misrepresentations, and engaged in fraud, to induce plaintiffs to acquire Homestore restricted stock. Plaintiffs also allege that Merrill Lynch & Co. and Homestore entered into an agreement to falsely report Homestore's revenues, operating income, and earnings per share, so that investors, like plaintiffs, would think Hom store was spending too much money; filed material misleading documents with the Securities and Exchange Commission; and engaged in financial manipulations to mislead investors about the purported success of Homestore's business.

The court found that plaintiffs had adequately alleged that Merrill Lynch knew with substantial certainty that investors, like plaintiffs who received Homestore stock as a result of stock-based acquisitions, would rely on the material false information provided to plaintiffs from Homestore's former Chief Executive Officer. For the same reasons, the court also found that plaintiffs had adequately alleged that Homestore's former Chief Executive Officer engaged in fraud and proffered negligent misrepresentations to induce plaintiffs to acquire Homestore's restricted stock.

If you wish to discuss the action please contact Andrew J. Morganti, Head of Complex Litigation at Siemion Huckabay, P.C., One Towne Square, Suite 1400, Southfield, Michigan 48086, Tel: (248) 357-1400, or by e-mail at amorganti@siemion-huckabay.com.