- The Washington Times - Tuesday, September 23, 2003

Two former senior executives of a failed Internet-commerce company pleaded guilty to corporate fraud charges yesterday in Alexandria federal court, as U.S. securities regulators also charged them with defrauding investors in transactions with America Online.

Jeffrey R. Anderson, who was PurchasePro.com’s senior vice president of sales and strategic development, pleaded guilty to conspiracy to commit wire fraud to inflate the company’s revenue for the fourth quarter of 2000 and first quarter of 2001.

Scott H. Miller, who was the Las Vegas company’s controller and senior vice president of finance during most of that time, pleaded guilty to obstructing a federal investigation by shredding documents and deleting computer files.

Anderson faces five years imprisonment and a $250,000 fine, and Miller a maximum of 20 years imprisonment and a $250,000 fine.

AOL Time Warner has disclosed that authorities are investigating whether its Northern Virginia-based Internet unit improperly booked advertising revenue and inflated subscriber numbers.

Civil charges filed yesterday by the Securities and Exchange Commission said Anderson and Miller falsified records to overstate revenue from AOL and hid documents from auditors and regulators.

PurchasePro, which had a market value of more than $4 billion in early 2000 and has since been bought by Palo Alto, Calif.-based Perfect Commerce, sold computer software, including a so-called business-to-business “marketplace license.”

The Justice Department said criminal pleas by Anderson and Miller stemmed from a conspiracy with “an employee of a major media company” to inflate PurchasePro’s revenue. The company was not identified.

“Under a warrant agreement between the two companies, this credit for non-existent referrals allowed the media company to ‘earn’ a total of $30 million worth of PurchasePro warrants,” U.S. Attorney Paul J. McNulty said.

“In exchange … the media company agreed to reward PurchasePro with revenue in future quarters.”

“In fact,” he said, “certain employees of the media company entered side agreements with the media company’s partners and suppliers, who then purchased marketplace licenses, thereby helping PurchasePro meet its revenue objectives.”

AOL wasn’t accused of wrongdoing in either the criminal pleas or civil charges filed yesterday.

PurchasePro’s license allowed small and large businesses to buy and sell products on the Internet, to participate in PurchasePro’s Web site-based marketplace, and to create their own branded marketplace using PurchasePro’s software.

Anderson pleaded guilty to involvement in a scheme to falsely inflate and announce to investors PurchasePro’s revenue from the sale of marketplace licenses.

According to Mr. McNulty, a significant portion of PurchasePro’s reported revenue was earned from license sales that were improperly recorded as revenue and that the sales actually were the result of side agreements kept secret from the company’s outside auditors and the investing public.

“The scheme may have been complicated but the end goal was not,” Mr. McNulty said.

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