Ex-PurchasePro Chief Sentenced for Stock Fraud

A flashy Las Vegas entrepreneur who became a billionaire at the height of the dot-com bubble was sentenced yesterday to nine years in prison for stock fraud, capping a seven-year investigation that led to seven convictions.

The sentence meted out to Charles E. Johnson Jr., founder and chief executive of now-defunct PurchasePro, was significantly less than that sought by federal prosecutors, who had recommended he spend between 16 and 17 1/2 years behind bars for defrauding investors in his now defunct software company in 2001.

At a hearing in Alexandria, U.S. District Judge Liam O'Grady ruled that because Johnson's crimes occurred more than seven years ago, he should be sentenced under older federal sentencing guidelines calling for a lesser sentence.

Johnson was convicted in May of stock fraud, witness tampering and obstruction of justice.

Prosecutors said he was the ringleader of a scheme to falsely inflate PurchasePro's revenue in the first three months of 2001, as the high-tech economy was in freefall. Seven people were convicted in the ensuing investigation, which also exposed improper accounting practices at PurchasePro's business partner, America Online.

PurchasePro relied heavily on AOL to sell licenses to software that supposedly facilitated business-to-business commerce. But AOL could sell the licenses only by relying on the side deals in which PurchasePro agreed to buy equal amounts of goods and services from companies willing to buy from PurchasePro.

In all, seven PurchasePro employees, including Johnson, were convicted. Four others, including two mid-level executives at AOL, were acquitted of all charges. AOL as a whole paid a $210 million fine in 2004 to settle criminal charges that it had aided and abetted stock fraud at PurchasePro.

Yesterday's sentencing, with Johnson in court wearing a striped prison jumpsuit, capped a remarkable downfall.

A Lexington, Ky., native, Johnson was a prominent civic booster in his hometown who had played guard for the University of Cincinnati basketball team in the 1980s. He made millions in charitable contributions in Lexington, including $2 million for a new gymnasium at Lexington Catholic High school.

At one point, when PurchasePro was a Wall Street darling, Johnson owned shares worth about $1.2 billion. Living in Las Vegas, he had a penchant for expensive suits and counted casino mogul Steve Wynn among his many friends.

But the entrepreneur lost it all as the stock tanked and the company went into bankruptcy.

Defense attorney John Steer said Johnson is unable to pay the $9.7 million in restitution that the judge could impose as a part of the sentence. Restitution is to be addressed at a later date.