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-- Lawyer Says Johnson to Enter Not Guilty Plea Today to 13 Charges -- |
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| Tuesday, January 11, 2005 Copyright © Las Vegas Review-Journal By John G. Edwards Review-Journal Charles "Junior" Johnson, 43, who founded PurchasePro.com and led Las Vegas into the Internet age, was indicted for securities fraud Monday along with three associates and two former executives with America Online. Johnson is charged with conspiracy, two counts of securities fraud, two counts of making false statements to PurchasePro's auditors, seven counts of wire fraud and obstruction of justice. Also charged with multiple counts are Scott Wiegand, 36, of Las Vegas, former senior vice president and general counsel at PurchasePro; Joseph Michael Kennedy, 51, of Morristown, N.J., former senior vice president and chief technology officer; and Christopher Benyo, 43, of Greer, S.C. Kent Wakeford, 36, of New York and former executive director of business affairs at AOL; and John Tuli, 37, of Weston, Mass., and former vice president of the NetBusiness unit at AOL, also are charged in the indictment. The six are to appear before U.S. District Judge Gerald Lee for arraignment today in Alexandria, Va. Johnson's defense attorney, Yale Galanter of Miami, said the former PurchasePro CEO will plead not guilty and seek a change of venue to Las Vegas, where the business-to-business company was based before its bankruptcy liquidation in 2002. "Junior is a corporate American hero, and the reason he is a corporate American hero is that every single asset he had in the whole world went into PurchasePro," Galanter said. "He walked away with nothing. He walked away from the company with even less than he had" when he started the company, Galanter said. However, the indictment describes Johnson differently. "Johnson was an organizer and leader of a criminal activity that involved five and more participants and was otherwise extensive," the indictment says. "Johnson coached these co-conspirators about the false story they all agreed to tell the (Securities and Exchange Commission) about their activities at PurchasePro," and co-conspirators did lie under oath, according to the indictment. Since leaving PurchasePro, he founded Nexx, a telephone company based in Las Vegas. The indictment asks for a court order requiring each of the defendants to forfeit at least $2.3 million in cash, representing the amount of proceeds obtained as a result of the alleged conspiracy. The indictment also calls for Johnson to forfeit his house at 8801 Palm Greens Court in Las Vegas. The government also is seeking Wiegand's house at 912 Cypress Ridge Lane and an unspecified amount in one of his brokerage accounts. "It shows a story of trying to create an appearance of success in business when it just wasn't there," said U.S. Attorney Paul McNulty. "These defendants swindled the investing public. In less than two years, the market capitalization (stock price time shares outstanding) of PurchasePro went from $1.2 billion to bankruptcy. This indictment charges them with lying to their investors about the true revenue of their company." At its peak, Las Vegas-based software firm PurchasePro employed about 575 workers and had 40,000 individual shareholders. In December 1999, PurchasePro shares sold for as much as $343.75. The defendants conspired to "conceal the true financial condition of PurchasePro" and boost its stock price, according to the indictment. The defendants used "secret, undisclosed side deals," forged contracts, booked revenue after the quarter closed by using back-dated contracts, and made false statements to auditors, the indictment alleges. Among the companies that entered into the side deals were Cisco, Hewlett-Packard, Homestore, Monster, Spherion and Travelocity, according to the indictment. The indictment explained that PurchasePro and AOL formed a strategic partnership in March 2000 to develop a business-to-business marketplace, where businesses could buy and sell goods to and from other businesses. The two companies entered three agreements. The agreements required PurchasePro to pay AOL $70 million in cash, to give AOL warrants to purchase PurchasePro shares for the fixed price of $63.25 per share and to receive additional warrants for performance. "By September 2000, the strategic partnership had failed to generate any revenues for PurchasePro or performance warrants for AOL," the indictment says. So AOL agreed to give PurchasePro $2 million in revenue by buying 10 reseller marketplace licenses that AOL did not intend to use or sell, the document continues. In November, Johnson and others amended the agreement to allow AOL to earn up to $135 million worth of warrants over nine months. Among other things, they reduced the price of the company's shares to one penny from $63.25, the government alleges. Johnson and others agreed that AOL would buy $10 million of products from PurchasePro and would receive $30 million worth of stock warrants. Of the $10 million that PurchasePro received, AOL paid $4.6 million for reseller licenses AOL did not need and intended to give away, the indictment explains. In March, Johnson caused PurchasePro to issue a statement repeating that it was on track to have more than $42 million in first quarter revenue although "PurchasePro had not made any first quarter marketplace license sales," the indictment states. Monday's indictment brings to 12 the number of individuals charged during the government's multiyear investigation of AOL and PurchasePro. Six other former PurchasePro executives, including the co-founder, have previously pleaded guilty. Wakeford and Tuli are the first two AOL employees to be charged. Court papers released last month indicated that as many as six individuals at AOL may have been involved in the PurchasePro transactions. Because of PurchasePro's false reporting, America Online was able to report about $20 million in additional revenue from PurchasePro in the fourth quarter of 2000 and $15 million more in the first quarter of 2001, according to court papers made public Dec. 15. AOL's corporate parent, Time Warner, which acquired the Internet company in January 2001, agreed last month to pay $510 million as part of a settlement of government investigations. The government is deferring a criminal case against Time Warner pending the investigation; the charges will be dismissed after two years if Time Warner cooperates and fulfills other terms of the settlement. The Associated Press and Bloomberg News contributed to this report. |