Suit against PPro rejected

Grace Leong

Thursday, March 6, 2003 | 10:57 a.m.

A judge has dismissed securities fraud claims brought by PurchasePro.com Inc. shareholders against the bankrupt Las Vegas technology company and its auditor, Arthur Andersen.

Senior U.S. District Judge Justin Quackenbush, in a ruling Tuesday, said the shareholders' claims failed to meet the standards for private securities fraud claims under the recently amended Private Litigation Reform Act (PLRA).

The judge said the PLRA requires complaints to "plead both falsity and scienter (fraud) with particularity in order to eliminate abusive securities litigation and put an end to the practice of pleading fraud by hindsight."

In light of the act's heightened requirements, Quackenbush dismissed claims against Arthur Andersen because "there are no ... facts and circumstances alleged that would arise to a strong inference of deliberate recklessness or conscious misconduct by Arthur Andersen."

Edward Blosser and other PurchasePro investors, in a class action lawsuit filed in 2001 in U.S. District Court in Las Vegas, alleged Andersen issued an unqualified opinion that the company's 2000 earnings statements were fairly presented and met accounting standards when they did not.

While Quackenbush dismissed the claims, he gave the shareholders until April 4 to file an amended complaint with claims meeting the pleading requirements of the PLRA against PurchasePro founder Charles "Junior" Johnson and several PurchasePro executives. The shareholders cannot sue Andersen again, he said.

PurchasePro shareholders' attorney Vahn Alexander said he will file an amended complaint against Johnson and several PurchasePro executives.

The shareholders had accused the defendants of engaging in insider trading when they issued false statements about the company to sell stock at fraudulently inflated levels. They also accused the defendants of inflating PurchasePro revenue from AOL Time Warner Inc.'s America Online division through the issue of warrants.

PurchasePro in March 2000 granted AOL about four million warrants for PurchasePro stock in return for access to AOL's large subscriber base to market PurchasePro's services.

The Securities and Exchange Commission has been probing these and other alleged revenue-inflating deals involving AOL.