Ex-PurchasePro Chief Found Guilty of Fraud, Obstruction

Charles E. Johnson Jr., founder of software firm PurchasePro, was convicted of inflating revenue to deceive investors in his software firm.
Charles E. Johnson Jr., founder of software firm PurchasePro, was convicted of inflating revenue to deceive investors in his software firm. (Andrew Serban - Bloomberg News)
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By Cecilia Kang
Washington Post Staff Writer
Friday, May 16, 2008

Dot-com highflier Charles E. Johnson Jr. was convicted yesterday of stock fraud and obstruction of justice after a federal court found that he misled investors by inflating revenue at his Las Vegas software firm.

The decision ended a tumultuous six-year corporate fraud investigation of the founder of software company PurchasePro, which was shuttered when the bubble of the dot-com boom burst.

Johnson's flashy and brash style drew attention to the case, along with an investigation that involved officials of America Online, which had been involved in a marketing arrangement with PurchasePro. In an unexpected turn, Johnson was caught fabricating e-mails to use as evidence to support himself.

In a lengthy opinion yesterday, U.S. District Judge Walter D. Kelley Jr. found Johnson, known as "Junior," guilty of securities fraud, witness tampering and obstruction of justice.

Specifically the judge said there was "ample evidence" that the former dot-com billionaire was involved in a conspiracy to defraud investors by using false documents and accounting to claim enhanced revenues in an April 26, 2001, earnings report.

"Mr. Johnson tried to manipulate the system for his own gain at the expense of the investing public," U.S. Attorney Chuck Rosenberg said, "and now will be appropriately punished."

In his opinion, Kelley wrote that his decisions were largely based on the testimony of convicted former PurchasePro executives R. Geoffrey Layne and James S. Sholeff. The two executives had falsely testified to Securities and Exchange Commission investigators; they later said Johnson instructed them to deny the earnings forgeries.

Johnson's defense attorney, Yale Galanter, criticized the judgment, saying that Layne and Sholeff were unreliable witnesses because they had acknowledged lying to SEC investigators.

Galanter said he didn't know whether his client would appeal the verdict because "a decision doesn't have to be made until the time of sentencing." Kelley is departing the bench today to join a private law firm. Another judge will sentence Johnson, which could further complicate matters because that judge will need to become fully acquainted with all the trial testimony, Galanter said.

"I have the utmost respect for Judge Kelley, but how can you rely on testimony by two people you call liars and perjurers?" said Galanter, a Florida-based attorney who represented O.J. Simpson in a hotel break-in.

The judge, however, said there was additional evidence that supported large portions of the stories told by Layne and Sholeff.

"Despite this baggage, the Court finds both Layne and Sholeff credible," Kelley wrote in his opinion. He added that Johnson's "consciousness of guilt is evidenced by his attempts to destroy e-mails . . . and alteration of evidence in this case."

Johnson altered e-mail at least three times and gave false e-mails as evidence to support his defense to his attorneys, Kelley said. The tampering of evidence led to the obstruction of justice charges. Johnson gave false e-mails to his first attorney, Preston Burton, to use as evidence in his defense. When it was discovered that the documents were false, Burton abruptly resigned.

The case has led to the conviction of six other PurchasePro executives. Last month two AOL executives were cleared in a civil trial on their alleged involvement in inflating revenues in a marketing partnership with PurchasePro.

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