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Thursday, May 15, 2008
(202) 514-2007
TDD (202) 514-1888

Former CEO Found Guilty on Securities Fraud Charges

ALEXANDRIA, Va. – Charles E. Johnson, Jr., the former CEO and Chairman of Inc., a now-defunct, publicly traded company that was headquartered in Las Vegas, was found guilty today of conspiring to commit securities fraud, securities fraud, witness tampering and obstructing an official proceeding, announced the Justice Department and Federal Bureau of Investigation. The Department of Justice made the announcement today after U.S. District Judge Walter D. Kelley released his verdict in Johnson’s bench trial which was completed in December 2007.

Johnson, 47, of Las Vegas was indicted on Jan. 10, 2005, by a federal grand jury. He faces a maximum penalty of 20 years in prison when he is sentenced.

“Corporate officials will be held accountable when they deceive unsuspecting investors, as today’s verdict proves,” said Deputy Attorney General Mark R. Filip, chairman of the President’s Corporate Fraud Task Force. “The Task Force will continue our efforts to improve the integrity of the marketplace and bring to justice those executives who violate the law.”

“This is an important victory in the fight against corporate fraud. Mr. Johnson tried to manipulate the system for his own gain at the expense of the investing public, and now will be appropriately punished,” said U.S. Attorney for the Eastern District of Virginia Chuck Rosenberg.

PurchasePro was engaged in the sale of computer software, including a so-called business-to-business “marketplace license.” This license allowed small and large businesses to buy and sell products on the Internet, to participate directly in PurchasePro’s own Web site based marketplace and to create their own branded marketplace using PurchasePro’s software.

According to court documents, Johnson and his co-conspirators, including other senior officers at PurchasePro, conspired to falsely inflate the revenue that PurchasePro recognized and announced to the investing public from the sale of PurchasePro marketplace licenses as well as the revenue generated for America Online Inc. (AOL) by its business affairs and interactive marketing units. Specifically, Johnson and his co-conspirators falsely inflated the revenue reported by PurchasePro to the investing public and the U.S. Securities and Exchange Commission (SEC) for the first quarter of 2001. Johnson worked closely with two PurchasePro employees, Robert Geoffrey Layne and James S. Sholeff, to carry out the deception. The three men misled PurchasePro’s auditors by forging documents, altering fax headers and backdating contracts, and then placing the documents in PurchasePro’s files where the auditors would find and rely on them. Johnson’s co-conspirators also caused the company to improperly recognize revenue from marketplace license sales by falsely certifying that there had been no undisclosed side agreements with the purchasers. Layne and Sholeff each pleaded guilty and were sentenced to prison terms.

“Today’s conviction illustrates that the FBI remains dedicated to investigating reports of corrupt business practices to assist in the prevention and circumvention of corporate fraud in the United States,” said Joseph Persichini Jr., Assistant Director in Charge of the FBI’s Washington Field Office.

Johnson originally faced trial on the securities fraud and witness tampering charges in a jury trial that began in October 2006 before Judge Kelley. Johnson’s first trial ended after Judge Kelley granted a motion from Johnson’s defense attorney to withdraw from the case and a mistrial was declared. The remaining defendants were subsequently acquitted. In the retrial, which began in October 2007, an obstruction of justice charge was consolidated with the original securities fraud charges. In addition to the guilty verdict on the original charges, Judge Kelley also found Johnson guilty of obstructing a federal proceeding as a result of his conduct during his original trial.

Previously, in related cases, former PurchasePro executives Dale L. Boeth, James S. Sholeff, Jeffrey R. Anderson, Scott H. Miller, Robert Geoffrey Layne and Shawn P. McGhee pleaded guilty to charges stemming from their participation in the scheme to inflate PurchasePro’s revenues for the first quarter of 2001 and were sentenced. In December 2004, a criminal complaint was filed against AOL charging the company with aiding and abetting securities fraud at PurchasePro. Pursuant to a deferred prosecution agreement, AOL agreed to accept responsibility for the conduct of its employees in transactions between AOL and PurchasePro, cooperate fully in the government’s continuing criminal investigation, adopt internal compliance measures, and pay $150 million into a compensation and settlement fund and a criminal penalty of $60 million.

This case was investigated by the FBI. The U.S. Attorney’s Office also received assistance from the SEC’s Division of Enforcement and the Criminal Prosecution Assistance Group of NASD Regulation Inc. The case is being prosecuted by Assistant U.S. Attorneys Stephen P. Learned and Timothy D. Belevetz, and Special Assistant U.S. Attorney Brigham Q. Cannon, Trial Attorney, with the Fraud Section of the Department of Justice’s Criminal Division. Assistant U.S. Attorney Thomas H. McQuillan also assisted with the prosecution of the charges related to Johnson’s obstruction of justice during the 2006 trial. Assistant U.S. Attorneys Chuck Connolly and Timothy D. Belevetz and Criminal Division Attorney Adam Reeves prosecuted Johnson in the original case. The investigation was conducted under the auspices of President Bush’s Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption at U.S. corporations.