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 Technology News | January 2005 
6 Former Net Executives Indicted in Conspiracy Case
 Jay Mallin - Bloomberg News
Attorney Paul J. McNulty, at microphone, announced the indictment of six former executives of Time Warner Inc.'s America Online unit and its former business partner, PurchasePro.com.
 Painting a picture of a desperate conspiracy to prop up a failing Internet company, a federal grand jury yesterday indicted four former top executives of PurchasePro.com, a defunct dot-com, and two former midlevel executives of America Online.
The indictment states that AOL and PurchasePro worked out a complex deal that was meant to inflate the revenues of both companies before PurchasePro began to collapse in 2001 amid recriminations.
Paul J. McNulty, the United States attorney for the Eastern District of Virginia, brought charges of conspiracy, securities fraud, wire fraud and obstruction of justice against Charles Johnson, the former chief executive of PurchasePro, a business software company that was based in Las Vegas. If found guilty, Mr. Johnson faces jail time and a potential fine of $2.25 million.
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.
The indictment also brought conspiracy and securities fraud charges against Kent Wakeford, a former business affairs executive at AOL; John Tuli, a former vice president in AOL's NetBusiness unit; Christopher Benyo, the former senior vice president for marketing at Purchase Pro; Joseph M. Kennedy, PurchasePro's former chief technology officer; and Scott Wiegand, PurchasePro's former general counsel.
An spokeswoman for Time Warner, AOL's parent, said the indictments were "not unexpected." She had no comment on the pending investigation.
Hank Asbill, Mr. Wakeford's lawyer, said that "my client denies any illegal conduct whatsoever."
Last year, six lower-level PurchasePro executives pleaded guilty to related charges. In December, AOL, a unit of Time Warner, was charged with assisting in securities fraud tied to PurchasePro. The Justice Department said it would withdraw the charges if AOL followed strict controls for two years.
When it announced the deal with AOL, the Justice Department said it was investigating six individuals who had worked at the company. A spokesman for the United States attorney's office declined to comment on the status of the four remaining cases other than to say that the investigation was continuing.
The case revolves around an agreement in March 2000 that called for PurchasePro to pay AOL cash and warrants to buy stock in return for AOL's help in selling PurchasePro's software.
Both companies had reason to feed Wall Street's Internet excitement by showing rapid revenue growth. PurchasePro went public in September 1999 and was worth $1.2 billion at its peak. AOL had agreed to acquire Time Warner in January 2000 in the biggest corporate merger ever.
By early 2001, executives from both companies became increasingly frantic as it became clear that AOL was not able to produce enough customers for PurchasePro, the indictment says. Mr. Johnson, PurchasePro's chief executive at the time, spent two weeks working in the New York offices of Mr. Wakeford, the AOL business affairs executive, as they tried to persuade AOL customers, including some of the most prominent companies in the country, to buy PurchasePro software, according to the indictment.
Eventually, AOL offered to give some companies discounts if they would buy PurchasePro software, the indictment says. For example, Cisco Systems bought software from PurchasePro for $440,000, and AOL deducted exactly that amount from its $5 million advertising bill.
According to the indictment, in March 2001, Mr. Johnson gave Mr. Wakeford a check for $12.2 million, representing a commission for AOL's help in selling Purchase Pro's software. After Mr. Johnson took the check back later that day, Mr. Wakeford sent him an e-mail message saying that an unnamed senior AOL executive was now "knee deep in blood" and would fly in the next day and track Mr. Johnson down at his hotel, the indictment says.
Mr. Johnson wrote back to Mr. Wakeford the same day, criticizing AOL for not living up to its pact, according to the indictment, but also said that "I pray this can be resolved because I enjoy the relationship and that is why I sold my soul."
According to the indictment, PurchasePro, with the help of the AOL executives, committed securities fraud by misleading the public about its revenue.
In March 2001, Mr. Johnson issued a news release saying PurchasePro's revenue for the first quarter would be $42 million. In April, it said that its revenue was $29.8 million. But by May, its filing with the Securities and Exchange Commission showed revenue of $16.02 million.
That same month, Mr. Johnson resigned as chief executive, and in 2002, PurchasePro filed for bankruptcy protection. |
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