A House of Cards topples…

images66.jpgWay back in 2005, we footnoted an upstart home restoration company who set Internet message boards ablaze as it flew higher and higher. Home Solutions of America (HSOA.PK) was one of the “it” stocks of 2005/2006, racing from $1.41/share in May 2005 to an all-time high of $14.14/share in May 2006 – a gain of 1000%!

As early as September 2005, we threw up the red flag, wondering why company insiders were clamoring to accelerate the vesting of their stock options. Nearly two and a half years later, we may finally have an answer in this filing disclosing the termination of employee and Board Director Scott Sewell.

In Sewell’s scathing letter tendering his resignation from the Board of Directors, Sewell accuses CEO Frank Fradella of improperly renovating the homes of corporate management at HSOA’s expense, re-aging past due receivables to make them appear current, improper acceleration of revenue recognition, and covering it all up by giving the auditors fake documents.

The warning signs had been present for some time now, as several members of the media have been questioning Home Solutions’ sketchy disclosures and semi-factual press releases. Since its glory days in the first half of 2006, the stock has plummeted below $1.00/share and an SEC inquiry is ongoing.

Monday’s filing marks the first time that HSOA has been forced to disclose the intensity of its internal strife. Continuous insider selling is not always an indicator of wrongdoing, but it’s certainly a red flag for shareholders. If management doesn’t even believe the yarns they’re spinning, why should you?