Prosecutors End Case in Long AOL Fraud Trial
Friday, January 5, 2007
Federal prosecutors concluded their accounting-fraud case against two former AOL executives yesterday afternoon, signaling that the long-running trial soon may end after unusual twists including a mistrial for one of the defendants.
The case, which began in an Alexandria federal courtroom in mid-October, is one of the longest criminal trials ever in a jurisdiction that is widely known as "the rocket docket" for its speedy and efficient justice, legal analysts said.
More than three dozen government witnesses testified about complex accounting tricks that hearkened back to early 2001, when the technology boom had turned into a bust. At the time, the Dulles Internet service provider struggled to show revenue and advertising gains by making questionable deals with dot-com business partners in which no revenue changed hands.
"There was an intense focus to get revenue," testified Jason Witt, a manager in AOL's aggressive and freewheeling business affairs unit, which has been disbanded. "It's probably the greatest pressure I've seen since ever."
A number of witnesses recounted how the AOL defendants -- former business affairs executive Kent D. Wakeford and former Netbusiness unit vice president John P. Tuli -- felt squeezed between the expectations of their employer to close more deals and demands from dot-com clients who themselves were struggling to stay afloat.
Witt, for example, said Wakeford told him not to put terms of a deal in writing. He also spoke of a 2002 meeting with Tuli in the AOL parking garage in which they discussed whether regulators had begun to inquire about AOL's dealings with two high-tech business partners. Defense lawyers contend that the accounting treatment on the deals had been vetted by experts in the company and by far-higher-ranking executives.
But the trial perhaps is most notable for the absence of the former AOL officials who led the business-affairs operation, such as David M. Colburn and Eric Keller, whose names came up regularly in testimony and who once had been the focus of government investigation. Time Warner, which absorbed AOL, agreed to pay more than $500 million to settle joint civil and criminal charges two years ago.
Neither Colburn nor Keller was charged with a crime. The five-year statute of limitations against them expired early last year. Prosecutors told U.S. District Judge Walter D. Kelley Jr. with the jury outside the courtroom that the U.S. attorney's office for the Eastern District of Virginia continues to investigate whether Keller misled investigators in sworn testimony to securities regulators. But there have been few, if any, signs of an active criminal investigation. The Securities and Exchange Commission, which has the power to seek the return of bonuses and other compensation, continues to scrutinize a number of former AOL executives.
The courtroom drama eased with the departure more than a month ago of its most colorful presence, Las Vegas entrepreneur Charles E. "Junior" Johnson. Johnson founded PurchasePro.com, a software manufacturing company that prosecutors say made a series of sham deals with AOL in early 2001 in an effort to stave off financial doom.
Johnson, who entertained spectators and courthouse personnel with his lively stories, was removed from the trial in November and a mistrial was declared for reasons that remain secret. Prosecutors say they intend to retry Johnson, who is accused of directing subordinates to destroy e-mail messages and forge accounting documents. That leaves his former employee Christopher J. Benyo as the only PurchasePro representative sitting at a defense table next to the former AOL executives.
Defense lawyers could wrap up their case in the next several days, putting their clients' fate in the hands of a jury that has remained attentive despite the trial's sometimes plodding pace. Earlier this week, five jurors dressed in business attire took notes and pored over documents, although a few panelists' eyes wandered as the morning dragged. So far, none of the three defendants has said he will testify in his own defense. Their lawyers will ask the judge to dismiss the charges against them in arguments today.
Central to the prosecution case are former PurchasePro executives R. Geoffrey Layne and James S. Sholeff, both of whom pleaded guilty in early 2005 and agreed to testify against their former business associates. Layne and Sholeff said they conspired with Johnson at the Bagel Cafe in Las Vegas in April 2001 to forge documents that allowed the company to reach revenue goals after the financial quarter had ended.
Their accounts over the course of the trial mostly implicated Johnson. They testified that they shredded documents and destroyed computers at his direction, then buried the ashes or raked the pieces into Sholeff's yard. Layne and Sholeff also mentioned conversations with Wakeford and Tuli, who were under heavy pressure to close revenue gaps at AOL.
Defense lawyers for the former AOL executives attacked the veracity of both witnesses and suggested that they misled the jury to get shorter prison terms. Layne is serving a sentence of more than four years. Sholeff has yet to begin serving an already reduced sentence of four months in prison and four months of home detention.
Mark J. Hulkower, a partner at the District's Steptoe & Johnson who represents Tuli, hit Layne with question after question about his history of lying to friends, lawyers, and prosecutors, as well as accepting payments from Junior Johnson to cover large gambling debts.
"There is nothing left of Geoff Layne," Judge Kelley said in a private conference last month at the bench, as he brushed back attempts by Hulkower and Wakeford's lawyer, Henry W. Asbill, to introduce a vulgar e-mail message that would have further assailed the witness's credibility, according to trial transcripts.
As in many business-fraud cases, the outcome may depend upon how indirect and sometimes-murky testimony resonates with the jury. Sholeff, testifying that he had to change the date on yet another contract in early 2001 to ensure that the company could book revenue in the first quarter, said he tried to make a joke to Wakeford at the time. "I said, 'I guess I have to go commit another crime,' " Sholeff said.
How did Wakeford respond? asked prosecutor Charles F. Connolly.
"He kind of laughed," Sholeff said. "It was a nervous kind of laugh."