Execs in US Court on AOL Fraud Charges

12 January 2005

Six former executives of Time Warner's America Online division, and the latter's now defunct business partner PurchasePro.com, have been indicted on federal fraud charges.

Two ex-employees of AOL, America's biggest internet service provider, and four PurchasePro officials including former ceo Charles Johnson, appeared in a Virginia court Tuesday accused of falsely inflating earnings and lying to investors.

The indictments follow TW's $501 million (€382m, £267m) settlement of criminal and civil charges brought by the Justice Department and financial regulator the Securities and Exchange Commission [WAMN: 17-Dec-2004].

The payment allows Time Warner to avoid prosecution but does not protect employees, past or present.

When the alleged fraud took place in late 2000 and early 2001, AOL was finalising its mariage with Time Warner, the largest merger in US history. PurchasePro, a software maker based in Las Vegas, was desperately trying to shore up its balance sheet just as its business was evaporating.

The two companies set up a business-to-business internet marketplace but had trouble signing up customers. The executives at the centre of the charges allegedly manipulated the books and boosted sales by promising free advertising or other business in return without telling investors.

Says US Attorney Paul McNulty: "This is a very active, ongoing investigation. When you summarise it, it's a story of trying to create the appearance of success in business that's just not there."

Time Warner says the indictments are not unexpected: "Pursuing individual prosecutions was the next logical step in the process the Department of Justice laid out after settling with the company."

Data sourced from Washington Post Online; additional content by WARC staff