Prosecutors charged two former officials of Time Warner Inc's America Online unit and four former PurchasePro.com Inc executives with fraud and conspiracy, accusing them of improperly booking ad sales to inflate revenue.
The six men boosted PurchasePro's reported sales by forging and back-dating contracts and providing false documents to company auditor Arthur Andersen LLP, said US attorney Paul McNulty in Alexandria, Virginia yesterday. As a result, false filings were made to federal securities regulators, he said.
"These defendants swindled the investing public," McNulty said. "In less than two years, the market capitalization of PurchasePro went from US$1.2 billion to bankruptcy."
The 31-count indictment by a federal grand jury follows Time Warner's agreement last month to pay US$510 million to settle US government investigations into whether AOL improperly booked advertising sales. Under the accord, Time Warner will escape criminal charges if AOL doesn't engage in fraud for two years.
One of the executives charged today, Charles Johnson, 43, is a former chief executive officer of PurchasePro. Courtney Dorman, a spokeswoman for a law firm that represents Johnson in civil matters, declined to immediately comment.
Another defendant, former America Online business affairs executive director Kent Wakeford, 36, "adamantly denies that he engaged in any wrongdoing," said his Washington lawyer, Hank Asbill. "He looks forward to telling his story to an objective audience."
John Tuli, 37, a former America Online vice president who was also indicted today, "committed no crimes and did nothing wrong," attorney Mark Hulkower said in an e-mailed statement. "We welcome the opportunity to prove that in court."
PurchasePro sold procurement software and services for business-to-business Internet transactions. In 2000, the company and AOL formed a partnership to develop an online business-to-business marketplace, according to the indictment. The executives charged today conspired to make PurchasePro appear successful to inflate revenue for AOL, according to the indictment.
Today's charges cover transactions that occurred at about the time America Online was nearing completion of its purchase of Time Warner, when a drop in revenue might have concerned investors.
As a result of PurchasePro's false reporting, America Online was able to report about US$20 million in additional revenue from PurchasePro in the fourth quarter of 2000 and US$15 million more in the first quarter of 2001, according to court papers made public Dec. 15. The Time Warner merger closed in January 2001.
The indictments were "not unexpected," and are "the next logical step in the process the Department of Justice laid out" when it settled with the company, said Mia Carbonell, a spokeswoman for New York-based Time Warner.
Shares of PurchasePro sold for as much as US$343.75 in December 1999. The Las Vegas-based company filed for bankruptcy in 2002.