Vegas firm tied to AOL revenue inflation

Friday, July 19, 2002 | 11:13 a.m.

A day after a shakeup in top management at media giant AOL Time Warner Inc., the Washington Post reported today the company's America Online unit boosted revenue by $20.5 million using unorthodox arrangements with Las Vegas technology company PurchasePro.

America Online, which entered a partnership with PurchasePro in 2000, gave the software company $9.5 million in cash for $30 million in stock warrants, the paper said. America Online then booked the difference as advertising and commerce revenue in its December 2000 quarter and another $7 million in the March 2001 period, the paper said.

PurchasePro also bought ad space from and paid commissions to America Online for selling PurchasePro software, the paper said. The warrants, which are similar to stock options, gave America Online the right to buy PurchasePro shares for 1 cent each, the paper said.

The warrants weren't tied to the ad revenue, and were related to selling PurchasePro software, the paper said, citing Charles Johnson, the Las Vegas software maker's former chief executive.

Problems with the AOL-PurchasePro deal surfaced in June 2001 when AOL suspended an executive, Eric Keller, while it looked into AOL's relationship with PurchasePro. An analyst at the time described Keller as the key advocate for PurchasePro at AOL.

AOL has declined comment on Keller.

Today's Washington Post report described a Dec. 21, 2000, meeting in which AOL executive David M. Colburn rewarded executives with "Bammy" awards for executing the PurchsePro deal.

"Colburn bestowed the Bammy's gold-star plaque on Kent Wakeford and Jason Witt, who had put together a complex transaction with PurchasePro.com Inc., a Las Vegas software maker," the Post reported.

"According to several people at the meeting, Colburn praised the two men for what he called a 'science fiction' deal to generate revenue, a reference some attendees took for the aggressive way the company constructed the transaction," the Post reported.

Colburn and several other attendees do not recall the statement, an AOL attorney told the Post.

And although the PurchasePro deal resulted in revenue being recognized because of an unconventional arrangement, AOL's attorney said it did not violate any accounting rules.

"Wakeford and Witt joined Colburn on stage and accepted the plaque. In his acceptance speech, Wakeford thanked someone who was not in attendance: 'Junior,' Charles E. Johnson Jr., PurchasePro's rambunctious founder and then-chief executive," the Post reported.

PurchasePro officials declined comment this morning. The company's stock fell 4.9 cents to 34 cents this morning, though it was unclear if the Washington Post story was related to the decline.

The stock has been volatile since the spring of 2001, when accounting issues and disappointing financial results led to the departure of Johnson.

The Post story followed Thursday's announcement that AOL Time Warner Chief Operating Officer Robert Pittman had resigned. Questions about accounting issues, including questionable revenue recognition at AOL, have contributed to a 61 percent decline in AOL's stock price this year.