LV firm receives inquiry by SEC on AOL deals

Friday, Aug. 2, 2002 | 11:01 a.m.

SUN STAFF AND WIRE REPORTS

PurchasePro, a money-losing Las Vegas software company, said Thursday it received a Securities and Exchange Commission inquiry into a transaction involving AOL Time Warner Inc.'s America Online Internet unit.

"I can confirm we've had an inquiry from the SEC about the AOL transaction, and we always comply with SEC requests," PurchasePro spokesman Steve Stern told Bloomberg News.

PurchasePro shares were down 1 cent, or 3 percent, to 32 cents this morning. It was unclear if the shares declined because of news of the SEC inquiry. The price of PurchasePro stock has been volatile for months.

America Online boosted revenue figures by $20.5 million using an "unorthodox" arrangement with PurchasePro, the Washington Post reported last month. Securities regulators and the Justice Department are investigating AOL Time Warner's accounting.

The SEC has questioned two AOL Time Warner executives, Myer Berlow and David Colburn, about America Online's dealings with PurchasePro, the Wall Street Journal reported today. Berlow and Colburn couldn't immediately be reached.

The Washington Post today also reported the PurchasePro/AOL inquiry. The Post, quoting sources, said Berlow and Colburn had retained attorneys in connection with the PurchasePro dealings.

America Online's arrangement with PurchasePro dates back to March 2000, and illustrates how the unit of the world's biggest media and Internet company would assure partners a share of future revenue through informal swaps, the Journal said.

At the time, PurchasePro agreed to pay $20 million to develop software with America Online and the two companies agreed to share revenue from sales, the Journal said.

In one arrangement described by the Post, America Online gave PurchasePro $9.5 million in cash for $30 million in stock warrants. America Online booked the difference -- $20.5 million -- as revenue in its December 2000 quarter, the Post said.

PurchasePro's agreement with America Online was terminated last year, and virtually all of the management involved in it have left the software company, Stern said.

"We've had no dealing with America Online for about a year," he said.

The Journal reported that several AOL executives said the focus of the inquiry is PurchasePro, which PurchasePro denies.

Former PurchasePro Chief Executive Charles "Junior" Johnson, who was ousted from the company amid accounting and disclosure problems, told the Journal that booking the equity sales as advertising revenue seemed strange to him.

"They were selling software for PurchasePro -- and they got warrants for selling it," he said. "I don't know how those become ad revenues."

AOL says it disclosed the fact that it occasionally booked equity sales as revenue in its 1999 annual report, the Journal said.