A federal judge has ordered that the supervised release of PurchasePro founder Charles “Junior” Johnson, Jr., be revoked after he was accused of hiding money in casino accounts and not reporting his gambling losses to his probation officer.
Lexington native Johnson was found guilty in 2008 of falsely inflating revenue of his company, PurchasePro, and handed a prison sentence and ordered to pay millions in restitution. A little more than a week before his supervised release was set to end in April, his probation officer accused him of lying about his assets in an effort to avoid high restitution payments.
The U.S. Attorney’s Office for the Eastern District of Kentucky has asked that Johnson be sent back to prison for 10 months and be handed an additional 12 months of supervised release, according to court records.
Johnson is scheduled to be in court on Thursday for a final revocation hearing, according to court records. At final revocation hearings, attorneys and prosecutors make arguments and a judge decides whether or not a defendant will return to prison, and for how long.
After being convicted of charges of fraud in 2008, Johnson was sentenced to nine years in prison and three years of supervised release. His supervised release began in April 2016.
Before filing for Chapter 11 bankruptcy in 2002, Johnson and PurchasePro were well-regarded in Lexington. Some who invested in the company and sold their shares before it went public made millions, others held onto their shares and lost millions.
Johnson was ordered to pay $9.7 million in restitution. He has paid $10,729.38 so far, according to the order filed Monday by U.S. District Judge Danny C. Reeves.
“The United States contends that Johnson has never accepted his guilt and does not believe he should be required to pay restitution,” Reeves wrote in the order. “Johnson was directed to use money from tax refunds, lottery winnings, inheritances, judgments, and any unexpected financial gains to pay his court-ordered financial obligation.”
Based on the financial information Johnson provided, his monthly restitution payment was set at $300, according to court records. Johnson was required to make monthly reports during his supervised release that listed any expenditures over $500, and was accused of misrepresenting his assets in an effort to keep his monthly restitution payments low, according to court records.
Johnson told his probation officer that he was managing an L.L.C. called Curare, and later one named Privato, according to court records. However, he did not report that he was also a member-manager of at least five other business “entities,” including JW2, Beaumont Noah and Luminary Diffusion Systems.
Johnson facilitated deals and received money from investors on behalf of the companies, according to court records. In one instance, he received $200,000 from a Lexington doctor to be used as “operating capital.”
Johnson was accused of gambling money from investors and business deals in Las Vegas. From the summer of 2018 to the spring of 2019, Johnson gambled at the Wynn Casino and the Red Rock Casino on multiple occasions, according to court records.
He won $52,200 at the Red Rock Casino, but lost a total of $476,865 at the Wynn Casino since 2018, according to court records. Johnson said he was gambling to capitalize his businesses, Reeves wrote in Monday’s order. Johnson did not include any of the gambling losses in his monthly expenditure reports, according to court records.
A probation form signed by Johnson in October 2018 stated that any false declaration of net worth and cash flow could result in “revocation of supervision, in addition to possible prosecution under the provisions of 18 U.S.C. § 1001, which carries a term of imprisonment of up to 5 years and a fine of up to $250,000.00 or both,” according to court records.
Johnson is accused of lying and omitting information in the October 2018 form in sections concerning bank accounts, business holdings, transfers of assets and “other debts,” according to Monday’s order.
Johnson maintained that he didn’t report the money he used to gamble because it did not belong to him, but to businesses he was associated with, according to court records. He also argued that “accounts” he had at the casinos were not actual accounts.
In Monday’s order, Reeves concluded that Johnson intentionally avoided disclosing his personal gambling from his probation officer. The order also concluded that the “accounts” at the casinos were actual accounts because Johnson could wire money into and out of them, and could convert the funds to gaming chips, which could be exchanged for cash.
Johnson had control of the casino accounts, and the net worth statement required that he report any assets he owned or controlled, the judge said in the order.
Johnson is accused of writing checks to himself from the account of at least one of the business entities he managed, and going “great lengths” to hide his control over the business’s funds, according to court records. The efforts included “the creation of promissory notes for fictitious personal loans.”
Johnson was also transferring money from investors between his different business entities, before eventually sending it to his casino accounts “for his benefit,” according to court records.
In the summer of 2018, Johnson helped facilitate a deal between DC Solar and Luminary Diffusion Systems, according to court records. Johnson is listed as a manager of Luminary Diffusion Systems with the Kentucky Secretary of State’s office.
A California company called DC Solar Inc. filed for Chapter 11 bankruptcy after the Martinez, Ca., home of the owners of the company was raided by the FBI in December of 2018, according to California and Nevada federal court records. Federal authorities called the company a “Ponzi-type” scheme, and billionare Warren Buffett’s Berkshire Hathaway Inc. lost millions investing in the company, according to a report by the Los Angeles Times.
DC Solar provided $1,021,500 to Luminary Diffusion Systems, according to court records. Johnson later transferred the money from Luminary Diffusion Systems to Diffusion Investments, which Johnson also manages. From there, Johnson transferred $475,000 of the money to JW2, according to court records.
Johnson then transferred $100,000 of the money to the Red Rock Casino, where he converted the money to a cashier’s check, according to court records. He also transferred $200,000 from JW2 to his personal Central Bank account, and later to his account at Wynn Casino.
Johnson allegedly went through a similar process of bouncing $200,000 invested by a Lexington doctor between different business entities before ultimately putting the money in a casino account, according to court records.
In all, Johnson was accused of violating four terms of his supervised release. In Monday’s order, Reeves concluded that he was guilty of violating each of them.