A federal grand jury has indicted six former executives of Time Warner's America Online unit and former business partner PurchasePro.com on charges of conspiracy to inflate revenues.
WASHINGTON (Reuters)A federal grand jury on Monday indicted six former executives of Time Warner Inc.s America Online unit and former business partner PurchasePro.com on charges of conspiracy to inflate revenues.
The six men, including PurchasePros former chief executive officer Charles Johnson, were accused of conspiracy, securities fraud, obstruction of justice and wire fraud.
In several places, the indictment refers to another unidentified "co-conspirator at AOL."
Asked if there would be further indictments, U.S. Attorney Paul McNulty told a news conference: "This is a very active and ongoing investigation."
Time Warner agreed last month to pay $510 million to resolve Justice Department and Securities and Exchange Commission charges that AOL had inflated revenue figures.
The former executives were charged with engaging in a scheme to artificially inflate revenue reported to the U.S. Securities and Exchange Commission through secret side deals, back-dated contracts and revenue swaps.
They forged contracts, lied to the public and destroyed documents during the investigation, said McNulty. "When you summarize it, its a story of trying to create the appearance of success in business thats just not there," he said.
PurchasePro filed for bankruptcy in September 2002, and is now known as Pro-After Inc.
The grand jury charged former AOL Business Affairs Executive Director Kent Wakeford, who managed the companys relationship with PurchasePro, and John Tuli, who was a vice president in AOLs NetBusiness unit.
In addition to Johnson, the grand jury also charged PurchasePros former senior vice president of marketing Christopher Benyo, chief technology officer Joseph Kennedy and Scott Wiegand, the companys general counsel.
Johnson, Benyo, Kennedy, Tuli and Wakeford also face civil charges filed by the SEC.
According to the grand jury indictment, AOL and PurchasePro set up a business-to-business Internet marketplace, but had trouble signing up customers.
The men manipulated their books through various techniques, including back-dating contracts so they would be included in quarterly revenue statements to create an illusion of growth.
"The quarter ends when I say it ends, not when the calendar says it ends," Johnson said around April 2001, according to the indictment.
They also sought to drum up sales by promising free advertising or other business in return without telling investors, the indictment said.
In return for $9.8 million in business from Office Depot , for example, AOL and PurchasePro gave the office-supplies retailer roughly three times that amount in advertising, debt forgiveness and other benefits, the charges said.
Time Warner spokeswoman Tricia Primrose Wallace said the indictments were "not unexpected."
"Pursuing individual prosecutions was the next logical step in the process that the (Justice Department) laid out after settling with Time Warner in mid-December," Primrose said.
All six are expected to report to the FBI and scheduled to appear in federal court in Alexandria on Tuesday, McNulty said.
The defendants and their attorneys could not immediately be reached for comment. (Additional reporting by Peter Kaplan, John Poirier)