SEC Charges Former AOL, PurchasePro Execs

The Securities and Exchange Commission has filed civil charges against
two former America Online executives, and three employees
of PurchasePro.com, with conspiracy to inflate revenues.

In the complaint filed Monday, the SEC charged PurchasePro founder and
former CEO Charles Johnson and two other former PurchasePro executives with conspiracy,
securities fraud, obstruction of justice and wire fraud. Two former executives of America Online
— John Tuli and Kent Wakeford — were also implicated in the charges.

According to the complaint, the defendants allegedly participated in a
“scheme to artificially inflate reported and announced revenues of
PurchasePro for the fourth quarter of 2000 and first quarter of 2001.”

In particular, the complaint alleges that Johnson ordered PurchasePro to
issue $30 million in unearned performance warrants to AOL in exchange for
AOL’s undisclosed promise to deliver revenue to PurchasePro in future
quarters.

The charges also include several attempts to conceal the reciprocal
agreements, secret side deals and adding revenue after a quarter closed by
using back-dated contracts.

The fraudulent contracts were then reportedly entered into with AOL,
causing PurchasePro to improperly recognize an additional $3.65 million in
first-quarter 2001 revenue, according to the commission.

AOL’s Wakeford is also charged with fabricating documents to create the
false impression that PurchasePro received far more in referred third-party
business from AOL than it actually had, accord to the Commission.

The false statements helped inflate PurchasePro’s revenues. They also later
prompted Wakeford to back-date a license sale agreement that made it appear
the company had a $3.1 million sale in the first quarter of 2001, said the SEC.

The complaint further alleges that Tuli, AOL’s vice president of Business
Development for Netscape at the time, repeatedly confirmed to PurchasePro’s
auditors that the services had been provided by AOL.

The defendants were also indicted on criminal charges filed by the U.S.
Attorneys’ office in Virginia Monday. They were expected back in court today.

The indictments come less than a month after Time Warner
agreed to pay $210 million in criminal and civil fines stemming from the
case.

A spokesperson from Time Warner, which owns AOL, was not immediately available. PurchasePro filed
for bankruptcy in 2002 and changed its name to Pro-After, Inc.

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