A grand jury today indicted two former America Online Inc. officials and four former executives of a business partner on conspiracy and fraud charges in connection to an alleged scheme between the two Internet companies to prop up each other’s financial results just as the dot-com market was beginning to collapse.
In the indictment, the executives are accused of inflating revenue and lying to investors about the true nature of the companies’ financial results. According to court documents, some of the executives forged and back-dated contracts and lied to auditors — and then attempted to cover up the scheme by destroying documents and e-mails and lying to federal authorities. The indictment also alleges that some executives of the AOL business partner, PurchasePro.com Inc., personally benefited from the scheme with millions in bonuses and stock options.
When the alleged scheme first took place in late 2000 and early 2001, AOL was in the critical stages of consummating its acquisition of Time Warner, the largest merger in U.S. history. PurchasePro, a software maker based in Las Vegas, was scrambling to shore up its balance sheet just as its business was evaporating.
Kent D. Wakeford, a former executive director in AOL’s business affairs, and John P. Tuli, a vice president in its Netbusiness unit, become the first two former AOL employees to be charged in the Justice Department probe, which began more than two years ago and includes the FBI, the U.S. attorney’s office and the Securities and Exchange Commission. The Justice Department previously said that “six or more” unidentified AOL executives were involved in the scheme with PurchasePro, in which both companies overstated ad revenue. Wakeford and Tuli are no longer with AOL; the company declined to discuss the nature of their departure.
Also indicted today was Charles E. Johnson Jr., the former PurchasePro chief executive and chairman. Johnson, in his first interview since the scandal broke in mid-2002, said he was innocent, laying the blame on what he described as rogue employees and his belief that the Justice Department has a political agenda to go after him.
“I didn’t do anything wrong,” he said.
Before today’s indictment, six former executives of PurchasePro had already pleaded guilty to charges stemming from the investigation. Two have been sentenced to prison terms. Today’s indictment brings to a dozen the number of AOL and PurchasePro officials who have been charged in the scandal.