AOL trial approaches conclusion

ALEXANDRIA, Va. -- A five-year criminal prosecution of shady accounting deals involving America Online approached a conclusion Monday with closing arguments in the trial of a flashy Las Vegas tech executive charged with stock fraud and obstruction of justice.

Prosecutors argued that Charles "Junior" Johnson, 46, of Las Vegas, was the leader of a scheme to falsely inflate revenue at his now-defunct software company, PurchasePro, in the first quarter of 2001, as the dot-com economy was collapsing.

The sham deals relied heavily on a partnership with AOL to help PurchasePro sell its core product, a "businessplace license" that supposedly facilitated business-to-business purchases.

At least four PurchasePro executives pleaded guilty to various charges, including several who agreed to testify against Johnson.

Five others who went to trial, including two midlevel AOL executives, were acquitted last year. No individuals from AOL were convicted, but AOL's corporate parent, Time Warner, agreed in 2004 to pay $510 million to settle the government investigations.

Prosecutors portrayed the scheme as brazen during Monday's arguments, with forged signatures and backdated fax machines approved by Johnson to make deals they had completed in April 2001 appear as though they had been done in March so PurchasePro could book them as first-quarter revenue.

The scheme also included secret side deals in which companies that agreed to buy PurchasePro's product would be paid off at a later date, prosecutors said.

Johnson founded PurchasePro in 1996, served as its CEO and was at one time a billionaire based on the value of his shares in the company.

Prosecutor Stephen Learned said Johnson was desperate to meet the revenue projections of Wall Street analysts to stop a free fall in the stock price.

"He was literally in a death spiral as the stock was dropping," Learned said.

The scheme to inflate the revenue was short-lived. In mid-April 2001, Johnson and other PurchasePro executives claimed to their board that they had met the company's revenue goal of $43 million. But auditors disallowed many of the deals Johnson had portrayed as legitimate revenue, and the company issued a statement claiming revenue of only $30 million.

A month later, in an official filing to the Securities and Exchange Commission, the revenue tally dropped even lower, to just $16 million. The stock price fell by more than 50 percent.

By then, the company's board had formed a special committee to investigate what happened, and by 2002 the SEC and the FBI were investigating.

But Johnson's defense attorney, Yale Galanter, argued that Johnson's own actions did not fit the profile of somebody trying to inflate the stock price. For one thing, Johnson never sold his shares in PurchasePro, even as the stock collapsed.

Galanter also said Johnson agreed to certain business decisions, like a downward adjustment of revenue guidance to Wall Street, that would have deflated the stock in the short term.

"If he was part of a conspiracy to falsely inflate the stock price, then why is he taking action that all experts agree would deflate the stock price?" Galanter asked.

Galanter also cast doubt on the credibility of those who testified against Johnson as part of plea agreements.