Tuesday, January 11, 2005
Two former executives with AOL and four former executives of PurchasePro.Com, including former CEO Charles "Junior" Johnson, were charged with securities fraud, wire fraud, and conspiracy related to a scheme to inflate the revenues of both companies through a swap arrangement in an indictment returned in the Eastern District of Virginia. PurchasePro.Com was a software sales company involving a "business-to-business" license (remember the days before the bubble burst and "B2B" was among the hot items in the market?), and a press release issued by the U.S Attorney for the Eastern District of Virginia states:
The indictment alleges that a substantial amount of PurchasePro’s reported revenue was earned from marketplace license sales improperly recognized as revenue because the defendants and their co-conspirators achieved the sales as a result of the side agreements with the marketplace purchasers that were kept secret from PurchasePro’s outside auditors and the investing public. Many of the side agreements were with AOL’s partners and suppliers, which purchased marketplace licenses in the first quarter of 2001, thereby helping PurchasePro meet its revenue objectives.
Three defendants (Johnson and two other PurchasePro.Com executives) are also accused of obstruction of justice, related to alleged destruction of documents and deletions of e-mails, and false statements to the FBI during its investigation. A story in the New York Times (Jan. 11) quotes Johnson's attorney (using the trusty nautical metaphor):
Yale L. Galanter, a lawyer for Mr. Johnson, said the charges against his client were baseless. "He was the captain of a sinking ship and he went down with the ship," he added. Mr. Galanter said that Mr. Johnson, who was worth $5 million before getting involved with PurchasePro, was now $15 million in debt.
Lawyers for the other defendants also deny their clients committed a crime. (ph)