Local      

Posted on Fri, May. 16, 2008

Junior Johnson guilty

Ex-billionaire convicted in federal fraud case

By Halimah Abdullah

HABDULLAH@MCCLATCHYDC.COM

WASHINGTON --

Charles "Junior" Johnson, a Lexington native who became a billionaire before he was 40, was found guilty Thursday on charges of fraud in a scheme that toppled Las Vegas-based PurchasePro and the executives who headed it.

Johnson, who founded the Internet company that became a sensation during the technology bubble of the 1990s, could face up to 20 years in prison for conspiracy and five years for wire fraud. He was also found guilty of witness tampering and obstruction of justice, which can carry up to a 20-year sentence.

The verdict brings to a close a labyrinthine legal saga that ensnared top-ranking officials from PurchasePro and one of its business partners, America Online. It is also an ending for many people in Kentucky who invested in the company. Initial investors who sold their shares after the company went public made more than $200 million. But those who held on to their shares until the stock tanked and the company filed for bankruptcy lost millions.

The written verdict came just one day before U.S. District Judge Walter Kelley Jr. of the U.S. District Court for the Eastern District of Virginia leaves the bench for private practice. It is unclear when Johnson will be sentenced.

"It was a total victory," said the prosecutor, Assistant U.S. Attorney Stephen Learned.

"We're disappointed," said Johnson's attorney, Yale Galanter. "I think that Judge Kelley put an enormous amount of time and effort into writing the opinion, you can tell that, and I have nothing but respect for him. Still, we were expecting a different result."

PurchasePro went public in late 1999 as a provider of software that would allow businesses to buy and sell with one another over the Internet.

Johnson, 46, was driven to succeed, even as a teenager. He led Lafayette High School to the state basketball championship in 1979. Seventeen years later, he moved into a Las Vegas mansion with an elevator and swimming pool, flew on his own 10-seat private jet, wore Armani suits and bought another Vegas mansion for his mother.

But to maintain that lavish lifestyle, Johnson, who had a degree in marketing from the University of Cincinnati, took his marketing of PurchasePro to a level that was illegal.

When the federal investigation into PurchasePro began just a little more than five years ago, prosecutors looked into several advertising deals between AOL and its business partners. Government attorneys suspected the deals were designed to pump up the companies' profits.

Propping up the price

The government charged that Johnson and other executives engaged in a number of fraudulent acts in order to prop up PurchasePro's revenue picture and stock price, and falsified reports and forged and backdated contracts to book revenue after the financial quarter ended.

E-mail from Johnson chronicled his growing sense of angst as he engaged in illegal acts to put a good face on his company's financial picture during the deal with AOL.

"Now (PurchasePro) will be crushed and it will personally cause my world to collapse ... Bottom line is that if we miss (financial targets) everything ultimately will hit the fan ... that is why I sold my soul," Johnson wrote former American Online business affairs executive director Kent Wakeford in an e-mail.

Jim Scholeff, a former PurchasePro sales manager, testified that Johnson instructed him to take computers and records related to the scheme to inflate PurchasePro's profits and shred, smash, and burn them and then spread the ashes in his yard.

"The record as a whole paints an unmistakable picture of a CEO desperate to meet the artificially high guidance that he himself set," Kelley wrote in his verdict. In perpetrating that artificial price, Johnson lied and coached others to lie to the regulators and to shareholders and analysts.

Other executives were also caught in the undertow as PurchasePro sank.

In 2003, Jeffrey R. Anderson, a former PurchasePro vice president, and Scott H. Miller, a PurchasePro vice president of finance and an accounting officer, pleaded guilty to a scheme that falsely inflated the company's revenues and misstated deals with AOL.

In February 2007, Wakeford, Christopher J. Benyo of Greer, S.C. -- PurchasePro's senior vice president for marketing and network development -- and former AOL vice president for Netscape NetBusiness John Tuli of Weston, Mass., were acquitted of criminal charges.

The Justice Department dropped criminal charges against PurchasePro's chief technology officer, Michael Kennedy of Morristown, N.J.

Last month, jurors in the Securities and Exchange Commission's civil case found Kennedy and Wakeford not liable on four claims of securities fraud filed by the SEC in January 2005. Benyo was found liable on one claim of aiding and abetting a securities law violation and not liable on three other securities violations.

A soap opera

But it was Johnson's case, with its unusual twists, that played out like a legal soap opera in court.

In 2006, defense attorney Preston Burton Jr. asked to withdraw as Johnson's attorney. Roughly a year later it was publicly disclosed that Johnson had provided fabricated e-mails as evidence.

Johnson testified that the e-mails were old correspondence that he mistakenly attached to financial data he was trying to provide the court and his attorneys and were never intended for legal use. His current attorney, Galanter, portrayed the incident as a misunderstanding and described Johnson as a "hands-on" client who wanted to see whether his legal team was up to snuff.

Galanter, perhaps best known for his representation of O.J. Simpson since 2000, was the latest in a string of attorneys to represent Johnson.

The prosecution insisted that Johnson was simply a liar who got caught.

Attorneys were surprised when, instead of a jury, Johnson's case was overseen by Kelley, the judge, who delayed issuing a written verdict until after a decision in a separate SEC case involving AOL and PurchasePro executives. Kelley then announced he was leaving the bench in mid-May.

Because Friday is Kelley's last day, the sentencing phase of Johnson's case probably will be handled by another judge, Galanter said.

"The one thing we all agree on is that this case has been incredibly unusual with its facts and circumstances," Galanter said.

---

The Herald-Leader is pleased to provide this opportunity for readers to comment on stories and issues. However, we urge readers to avoid personal attacks or inappropriate remarks in their postings. Some of the comments may be reprinted in the newspaper. The views expressed here are not those of the Herald-Leader or its staff. Registered user names are posted for comments.