Wednesday, Sept. 24, 2003 | 11:25 a.m.
Two former PurchasePro.com Inc. executives have entered guilty pleas in connection with a corporate fraud investigation into the failed Las Vegas technology company.
In announcing the pleas, the Justice Department indicated that a broader investigation continues and that additional executives of the Las Vegas company were involved in fraud.
Jeffrey R. Anderson, former senior vice president for sales and strategic development for PurchasePro, on Tuesday pleaded guilty to conspiracy to commit wire fraud. The plea stems from his participation in a scheme to inflate the company's revenue, a statement released by the U.S. Department of Justice said.
Scott H. Miller, the former PurchasePro controller and senior vice president of finance, on Monday pleaded guilty to impeding and obstructing a federal criminal investigation, the statement said.
The pleas were entered in U.S. District Court in Alexandria, Va.
"These guilty pleas, and the cooperation from the defendants that they require, are an important step in this ongoing investigation," said Assistant U.S. Attorney General Christopher Wray.
Miller began cooperating with federal authorities in February after he decided to admit to destroying documents, said Robert Luskin, a Washington attorney representing Miller.
"He brought the matter to the government's attention and accepted responsibility for his actions," the attorney said. "The government had absolutely no idea of the conduct and would not have known if Mr. Miller had not told them."
Anderson and unnamed co-conspirators -- including other senior officials at PurchasePro and an employee of America Online -- are accused of inflating revenue figures, according to officials, a Justice Department statement and court documents.
The statement said PurchasePro had an agreement to give a company (AOL) $30 million in PurchasePro warrants in exchange for arranging for the purchase of license agreements to the Las Vegas company's e-commerce software. The transactions were used to inflate revenue figures for PurchasePro in the fourth quarter of 2000 and the first quarter of 2001.
"Mr. Anderson has acknowledged his role in a widespread conspiracy to inflate PurchasePro's publicly-reported revenue to sustain PurchasePro's appearance as a growing, successful Internet company and to meet revenue estimates," said U.S. Attorney Paul McNulty. "In short, you cannot cook the books to make it look like you earned more money than you really did. That is illegal."
While AOL Time Warner is not directly named in the Justice Department statement, a recent book -- "Stealing Time" -- by Washington Post reporter Alec Klein outlined the transactions between PurchasePro and AOL.
"There is still a day of reckoning for a lot of people involved with both of these companies," Klein said in a July interview.
Reached in Washington this morning, Klein said PurchasePro has not completed its collapse.
"I don't think this is really the end of the story for PurchasePro," he said.
At least one analyst has indicated that the moves against PurchasePro could be just the beginning.
"I think in connecting the dots you can make the case that the government may be going after these executives to get at even bigger bait," said Peter Mirsky, an analyst at Oppenheimer & Co.
Court documents show that Anderson told investigators that he conspired with AOL executives to inflate its advertising revenue by about $15 million in the fourth quarter of 2000.
The documents later refer to a press release that was issued by PurchasePro and the media company on the same day AOL and Purchase Pro announced an expanded partnership. The $15 million in revenue from PurchasePro, almost all profit, occurred in the fourth quarter of 2000, when AOL reported net income of $37 million and advertising and commerce revenue of $686 million, the New York Times reported. That was the last quarter before AOL completed its acquisition of Time Warner.
In addition to the criminal pleas, the U.S. Securities and Exchange Commission also reached settlement deals with Miller and Anderson on civil charges.
PurchasePro founder Charles "Junior" Johnson could not be reached for comment. He is currently serving as chairman of Nexx, a Las Vegas-based multilevel marketing company.
PurchasePro was founded by Johnson in 1996. At its pinnacle the company employed more than 1,000 people and its stock traded as high as $395.94 (split-adjusted) in December 1999.
In May 2001, Johnson was ousted by the company's board of directors amid mounting accounting problems. A few months later, company executives were being questioned about dubious transactions between the Las Vegas company and technology giant America Online.
PurchasePro filed for Chapter 11 bankruptcy protection in September 2002.
By the time the sale of PurchasePro 's assets to California-based Perfect Commerce was approved by a bankruptcy court judge in January,the company had about 70 employees. The assets of the company -- which carried a stock value of $3.2 billion in 2000 -- sold for about $2.5 million.
Gregory Garman, an attorney with the Las Vegas law firm of Gordon & Silver Ltd., said in July that the company's estate has formally entered into a "non-prosecution" agreement with federal investigators who have been looking into the company's spectacular collapse for months. That deal, he said, would insulate what is left of the company against prosecution by the the U.S. Securities and Exchange Commission and the U.S. Justice Department.
The deal was reached in exchange for cooperation in ongoing investigations and only covers the company itself -- not former executives, Garman said.
He said the government has not identified the targets of the investigations.
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