PurchasePro’s former execs fight moves against them

Kevin Rademacher

Monday, Nov. 17, 2003 | 11:21 a.m.

Attorneys for several former PurchasePro.com Inc. executives have filed papers opposing recent legal maneuvering by the bankrupt Las Vegas technology company's estate.

On Oct. 20 the company's estate filed a motion in U.S. District Court that accused former executives and directors of securities violations, corporate waste and breach of fiduciary duty. The motion also seeks to allow a lawsuit submitted by the estate to take the place of existing shareholder lawsuits.

The opposition -- filed on behalf of former PurchasePro executives Christopher Benyo, Christopher Carton, John Chiles, James Clough, Shawn McGhee, Richard Moskal and Scott Miller -- said the estate does not have the legal standing to take over the existing lawsuits.

"(The estate's) application to this court is both highly unusual and without merit," the opposition filing said.

William Sullivan, a San Diego attorney representing the seven former executives, said his clients deny any wrongdoing in the fall of PurchasePro. He also emphasized that neither the existing lawsuits or the new suit proposed by the estate illustrate any specific crimes by the individuals.

Gregory Garman, the Las Vegas attorney representing PurchasePro's estate, said the opposition was not unexpected and maintained that the estate's efforts are sound.

"Procedurally, I don't think it was a surprise," he said.

The estate's lawsuit outlines a series of questionable transactions made by the company in 2000 and 2001.

"In short, defendants entered into illegitimate transactions and manipulated certain financial information to make it look like PurchasePro earned more revenue than it did," the estate's lawsuit said.

In addition to the 11 executives and directors named in the estate's lawsuit is PurchasePro founder Charles "Junior" Johnson.

Among the transactions outlined in the lawsuit is a deal between PurchasePro and Broadvision. The suit claims that checks were swapped when the Las Vegas company bought $11.2 million of software from Broadvision, which in turn bought $5 million in software from PurchasePro.

"The $5 million was referenced as revenue for PurchasePro on PurchasePro's publicly filed accounting statements," the estate's lawsuit said. "Then, PurchasePro booked the $11.2 million expense as an asset, despite the fact that PurchasePro never actually utilized the Broadvision software."

The estate said similar deals were made with other companies, including well-publicized deals with America Online.

"PurchasePro developed strategic relationships with other businesses that were fraught with transactions involving PurchasePro giving away PurchasePro stock warrants as inducements to obtain revenue," the estate's suit said.

PurchasePro was founded by Johnson in 1996 and saw its stock trade as high as $395.94 (split-adjusted) in December 1999.

In May 2001 Johnson was ousted by the company's board of directors amid mounting accounting problems. PurchasePro filed for Chapter 11 bankruptcy protection in September 2002.

PurchasePro's assets were sold to California-based Perfect Commerce in January for about $2.5 million.