X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Four executives accused of cooking the books at America Online Inc. and PurchasePro.com had been hoping to deliver a knockout blow to the government’s case against them. Last week, however, Senior Judge Gladys Kessler of the U.S. District Court for the District of Columbia dashed their hopes. In multiple rulings, Kessler rejected their request to have the civil fraud claims against them dismissed and breathed new life into a case that recently had become a tough sell for the government. The sprawling case against AOL and PurchasePro has been dragging on for nearly six years. The last remnants are tied up in the civil case filed by the Securities and Exchange Commission. The defendants � former AOL executives Kent Wakeford and John Tuli, and former PurchasePro officials Christopher Benyo and Michael Kennedy � are accused of taking part in a scheme to deceive investors and accountants by inflating the revenue of Las Vegas software developer PurchasePro. They had some reason to believe they might be able to avoid trial. Last year, Wakeford, Tuli and Benyo were acquitted by a jury in the U.S. District Court for the Eastern District of Virginia of criminal charges related to the scheme. The Justice Department then dropped criminal charges against Kennedy, PurchasePro’s former chief technology officer. (A fifth defendant, PurchasePro founder Charles Johnson, is currently awaiting a ruling from a federal judge on the criminal charges against him.) The case has involved several top-tier white collar practices. Wilmer Cutler Pickering Hale & Dorr, Williams & Connolly, and McGuire Woods represented AOL. Steptoe & Johnson partner Mark Hulkower and associate Marc Levin represent Tuli. Terrance Reed, a name partner at Lankford Coffield & Reed, is defending Benyo. And Kennedy is represented by David Schertler and Daniel Onorato of Schertler & Onorato. Wakeford, Benyo and Kennedy are scheduled to go to trial on March 3. Tuli’s trial is set for July. Throughout the case, the former executives have maintained their innocence, claiming they were unwittingly doing the bidding of their superiors. “My client has had his life on hold for six years,” said Dewey & LeBoeuf partner Henry Asbill, who represents Wakeford. “Initially, his freedom was at stake, and now his reputation and employment might be adversely impacted.” EARLY VICTORIES The PurchasePro-AOL case grew out of a broader investigation into accounting practices at AOL beginning in 2002, after the government suspected the company was striking a series of sham advertising deals designed to artificially boost revenue as the dot-com bubble burst in 2001. In December 2004, AOL reached a settlement with the government by agreeing to pay $510 million in fines and penalties. In return, the government would defer its criminal prosecution against AOL if the company continued to cooperate with investigators in the probe. PurchasePro filed for bankruptcy in 2002 and was bought out by Kansas City-based Perfect Commerce Inc. The government alleges that the PurchasePro-AOL fraud stems from a March 2000 deal, which prosecutors call “round-trip” accounting. The companies failed to exchange money, despite AOL and PurchasePro claiming to have paid the other for advertising and other services. The government says the deal was nevertheless made to look profitable after PurchasePro and AOL employees began backdating and forging contracts to fraudulently boost PurchasePro’s income by tens of millions of dollars in the first quarter of 2001. A half-dozen PurchasePro employees cut deals with investigators and agreed to testify against their co-workers. The government’s criminal case against Johnson, Benyo, Wakeford and Tuli went to trial in October 2006. All faced charges of conspiracy, securities fraud and aiding and abetting; Johnson, Wakeford and Tuli were also charged with making false statements to auditors. The three-month trial was full of drama. Defense lawyers picked apart government witnesses. One witness, Matthew Sorensen, retracted some of his testimony during cross-examination, according to court papers. The Washington Postreported that a mistrial was declared in Johnson’s case when his lawyer, Preston Burton of Orrick Herrington & Sutcliffe, learned his client may have fabricated e-mail evidence. Burton withdrew from the case. Defense attorneys say the government built much of its criminal case against the four around Johnson, and his departure was pivotal. On Feb. 6, 2007, after only three days of deliberation, the jury found Benyo, Wakeford and Tuli not guilty on all charges. LESS TO PROVE Unlike the criminal case, the civil case is limited to counts of aiding and abetting a securities fraud and involving a $3.65 million transaction. If the jury sides with the government, the SEC would recommend a penalty to Kessler, who could punish them with fines and strip them of the ability to work as an officer in a publicly held company. David Gottesman, a trial attorney in the SEC’s commercial litigation branch who is the attorney of record for the agency, did not return calls seeking comment. A spokesman for the SEC declined to comment. But securities lawyers say the government’s decision to go forward with the civil case in the wake of losing the criminal one is not unusual � though they point out that such cases are usually settled prior to reaching trial. “It’s unusual for an SEC case to go to court,” said David Martin, co-head of Covington & Burling’s corporate and securities practices. “Each side has dug in and must think they have a good chance.” Asbill, of Dewey & LeBoeuf, said Wakeford will not settle. “We’re going to trial,” he said. “My client wants to clear his name.” One reason cases settle often is that the government has less to prove in civil fraud. The SEC needs only to show “through a preponderance of evidence” that the defendants knowingly engaged in aiding and abetting the fraud. “The difference in the burden of proof is stark,” said Martin, who was the director of the Division of Corporation Finance at the SEC until 2002. The defense lawyers said there are reasons for optimism. For one, the same lawyers who represented the defendants in the criminal case are involved in the civil matter. Defense lawyers also pointed out that the government still has a problem with witness credibility, noting that the transaction at the center of the civil case was part of the criminal case. “The one transaction that’s still at issue was a transaction that was fully litigated and rejected by that jury,” said Asbill. “Whether that preordains the same conclusion with a different trial and jury remains to be seen.” This article originally appeared inLegal Times, a publication of ALM.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.