Charge added in new trial
ALEXANDRIA, Va. — A one-time dot-com billionaire not only cheated investors at his now-defunct software firm, he also tried to defraud a federal court at his trial last year by pushing his lawyer to introduce phony e-mails as evidence, prosecutors said Tuesday.
Charles “Junior” Johnson, 46, whose Las Vegas-based tech company PurchasePro became embroiled in an accounting scandal with AOL in 2001, went on trial again in U.S. District Court on charges including stock fraud, conspiracy and witness tampering. And prosecutors added a surprise new charge: obstruction of justice, for allegedly urging his high-profile defense attorney to use bogus e-mails in the cross-examination of a government witness.
Johnson was one of four executives, including two midlevel execs from AOL, who went on trial last year for the alleged stock fraud. But midway through the trial, U.S. District Judge Walter Kelley declared a mistrial in Johnson’s case for reasons that had remained under seal until Tuesday.
Prosecutors did not reveal all the details of the alleged trial obstruction, but Johnson’s former lawyer, Preston Burton, is expected to testify for the government against Johnson.
Burton is perhaps best known as one of the lawyers who represented Monica Lewinsky during the President Clinton impeachment investigation. He also represented confessed spy Robert Hanssen. More recently, Burton has represented alleged Washington madam Deborah Jeane Palfrey. Burton declined comment Tuesday.
Johnson’s current attorney, Yale Galanter, did not address the obstruction of justice charge in his opening statement Tuesday. He declined comment outside of court.
At last year’s trial, the other three defendants — all of whom were acquitted — frequently pointed their fingers at Johnson as the driving force behind the accounting conspiracy.
In the first quarter of 2001, as the dot-com bubble was bursting, PurchasePro was having a hard time selling its core product, a “marketplace license” that supposedly facilitated business-to-business purchases over the Internet.
PurchasePro had advised Wall Street that its revenue would increase significantly in the first quarter of 2001, even though its product was essentially a failure, prosecutor Timothy Belevetz said in his opening statement. PurchasePro was relying heavily on a partnership with AOL to sell the licenses, and AOL resorted to secret side deals and sham accounting to unload the licenses on other businesses.
The conspiracy included efforts to backdate fax machines to make it appear that sales made in April 2001 actually occurred in March. At last year’s trial, PurchasePro executives testified they smashed laptops and buried the shards under swimming pools to conceal the fraud, all of which was designed to make it appear that PurchasePro had met its sales goals in the first quarter of 2001.
“This case is about a pattern of lies and omissions that begins with lies told to the auditor, Arthur Andersen, with lies to the investors … and finally ends with attempts to defraud this very court,” Belevetz said.
Johnson, a flashy businessman who played guard for the University of Cincinnati basketball team in the early ’80s and counts Las Vegas casino developer Steve Wynn among his friends, was PurchasePro’s largest stockholder and controlled more than $1 billion in shares at their peak price, according to court testimony.
But he never sold his shares, even as the stock collapsed and became worthless.
Galanter said Johnson’s refusal to sell the stock when it was valuable is proof that he was not engaged in stock fraud. If he had been trying to cash in the shares’ inflated value, he would have sold.
“The overriding theme of the government’s case is that (Johnson) manipulated deals to falsely increase the stock price,” Galanter said. “But he did not sell a single share of stock.”
Galanter waived his right to a jury trial, so the judge will determine Johnson’s guilt. The trial is expected to last about three weeks.
Ed Kim, former senior vice president of operations at PurchasePro, was the first witness called by the prosecution Tuesday. He is expected to return to the stand for most of today.
