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Former tech executive found guilty of securities fraud

Former tech executive found guilty of securities fraud

The former chairman and CEO of dot-com boom company PurchasePro.com is found guilty of securities fraud

The former chairman and CEO of PurchasePro.com, a business-to-business software broker that died during the dot-com bust, has been found guilty of securities fraud, witness tampering and other crimes, the US Department of Justice announced.

Charles "Junior" Johnson, who resigned as chairman and CEO in May 2001, was found guilty in US District Court for the Eastern District of Virginia of conspiring to commit securities fraud, securities fraud, witness tampering and obstructing an official proceeding. Judge Walter Kelley released his verdict Thursday after a bench trial that finished in December.

Johnson founded PurchasePro.com in 1996, and the company was one of the dot-com boom's early success stories. PurchasePro, which had a close relationship with AOL, sold computer software through a B-to-B marketing license, allowing businesses to buy and sell products on the Internet, to participate directly in PurchasePro's own Web-based marketplace and to create their own branded marketplace using PurchasePro's software.

The company went public in September 1999, and shares leapt 117 percent the first day to close at US$26.13. In December 1999, the company's adjusted stock price hit a peak of nearly $396 a share.

In March 2000 and April 2001, the company signed deals with AOL, the latter to jointly develop a B-to-B marketplace called Netscape Netbusiness Marketplace. But in late April 2001, the company announced its earnings would be significantly lower than Wall Street expectations, and that same month, investors filed a class-action lawsuit against the company, accusing its executives of improperly recognizing revenue as a way to pump up stock prices.

In August 2002, the US Securities and Exchange Commission began investigating AOL's relationship with PurchasePro, and in September 2002, PurchasePro filed for bankruptcy.

Johnson, 47, of Las Vegas, was indicted in January 2005. He faces a maximum penalty of 20 years in prison for the charges he was found guilty of Thursday.

Johnson and his co-conspirators, including other senior officers at PurchasePro, conspired to falsely inflate the revenue the company announced to investors from the sale of PurchasePro marketplace licenses as well as the revenue generated for AOL, the DOJ said. Johnson worked with company employees Robert Geoffrey Layne and James Sholeff to inflate revenue for the first quarter of 2001, the DOJ said.

The three men misled PurchasePro's auditors by forging documents, altering fax headers and backdating contracts, and then placing the documents in PurchasePro's files where the auditors would find and rely on them, the DOJ said. Layne and Sholeff each pleaded guilty and were sentenced to prison terms.

"Corporate officials will be held accountable when they deceive unsuspecting investors, as today's verdict proves," US Deputy Attorney General Mark Filip, chairman of the President's Corporate Fraud Task Force, said in a statement. "The task force will continue our efforts to improve the integrity of the marketplace and bring to justice those executives who violate the law."

Johnson originally faced trial on the securities fraud and witness tampering charges in a jury trial that began in October 2006 before Judge Kelley. Johnson's first trial ended after Kelley granted a motion from Johnson's defense attorney to withdraw from the case, causing a mistrial.

In the retrial, which began in October 2007, an obstruction of justice charge was consolidated with the original securities fraud charges. In addition to the guilty verdict on the original charges, Kelley also found Johnson guilty of obstructing a federal proceeding as a result of his conduct during his original trial.

Six other PurchasePro executives, including Sholeff and Layne, have pleaded guilty to charges related to the stock inflation scheme.

In December 2004, a criminal complaint was filed against AOL charging the company with aiding and abetting securities fraud at PurchasePro. As part of a deferred prosecution agreement, AOL agreed to accept responsibility for the conduct of its employees in transactions between AOL and PurchasePro, cooperate fully in the continuing criminal investigation, adopt internal compliance measures, and pay $150 million into a compensation and settlement fund and a criminal penalty of US$60 million.


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