Regent calls for Harter to disclose PurchasePro dealings

Jennifer Knight

Wednesday, Oct. 22, 2003 | 11:17 a.m.

Regent Mark Alden is calling for University of Nevada, Las Vegas, President Carol Harter to provide the board of regents with a full explanation of her involvement with PurchasePro.com, a company accused of securities violations, corporate waste and breach of fiduciary duty.

Harter served as a director of the now-bankrupt Las Vegas-based technology company between January and May 2001 and was named as a one of eight defendants in a lawsuit filed Monday in U.S. District Court.

The suit alleges the defendants entered into "illegitimate transactions and manipulated certain financial information to make it look like PurchasePro earned more revenue that it did."

The suit claims the founder Charles "Junior" Johnson, other executives and directors of security violations, corporate waste and breach of fiduciary duty.

In a strongly worded letter addressed to Regent Chairman Stavros Anthony on Tuesday, Alden urged him to find out about Harter's involvement with the company.

"If she is innocent of these allegations, it is vital that you and the chancellor provide immediate support of Dr. Harter's character and reputation," Alden said in his letter Tuesday. "Conversely, if more information comes forward that warrants board involvement, I would encourage you to do so expeditiously and fairly."

Greg Garman, who filed the suit on behalf of stockholders and creditors, said as a director Harter had an obligation to protect shareholders.

He is hoping to pay off the company's creditors and get some compensation for shareholders.

"All directors have a fiduciary responsibility to the shareholders and this set of directors breached their fiduciary duties," said Garman, an attorney with Gordon & Silver, Ltd. "The directors hold the ultimate responsibility."

Harter did not return phone calls.

A source close to the company's situation said there was no way Harter could have known about the financial problems plaguing PurchasePro.

"You are completely at the mercy of company officers in terms of the information you are given," the source said. "Could she have seen any accounting irregularities? No, no one could have."

Several key transactions that sent the company spiraling into deeper debt happened during Harter's time on the board and while PurchasePro founder Johnson was chairman, according to the lawsuit.

Before Harter became a director PurchasePro agreed in March 2000 to buy $11.2 million in software from Broadvision in exchange for the company purchasing $5 million in PurchasePro stock. PurchasePro listed the stock purchase as revenue and the software expense as an asset without ever using the software. The suit called this corporate waste.

While Harter served on the board PurchasePro developed a relationship with AOL which was described in the lawsuit as "nothing more than a seedy, desperate revenue grab between the two companies."

Some of the actions allegedly taken by Johnson included making a check out to AOL for $12.2 million the last day of the first quarter in March 2001. The company claimed the expense for the second quarter financial report, according to the suit.

During that same period of time, PurchasePro overpaid AOL $8 million even though the online company still owed the company $16.4 million. By June of 2001, AOL realized $127 million from its relationship with PurchasePro.

Regent Steve Sisolak said in light of the suit's allegations, he worries about Harter's ability to oversee UNLV's $300 million budget.

"I'm sure president Harter did her due diligence with this company before getting involved with it," Sisolak said. "Some people would question her decision-making process."

Alden suggested Harter step down as president temporarily until the suit is settled.

"It could be that (the board) starts going through this and they find out that the investigation is ongoing and may take a long time and they may decide she may have to step down from her position until this is cleared up," Alden said.

Anthony took a more reserved approach to the situation.

"I'm familiar with these kinds of lawsuits," Anthony said. "Sometimes, they just name anybody. It wasn't anything that jumped out at me."

Harter's relationship with PurchasePro came about because Johnson was a regular UNLV donor.

Harter was invited to serve on the board with the promise that Johnson would become "a major donor," the source close to the company said.

There is no policy against serving on a board, and Harter told university officials of her involvement. According to Security and Exchange Commission filings, members of the board of directors received $10,000 per year for serving and were given a stock option allowing them to purchase 30,000 shares of common stock.

According to the source, Harter was not paid for her work on the board.

The time of Harter's departure from the board came on just after Johnson's resignation as chairman and at the same time as another board member.

The source close to the company said that Harter resigned as director because "the company was going into turmoil-driven times and she was spending a tremendous amount of time on this issue and had not anticipated it would take so much of her efforts."

News of the lawsuit broke just one month before Harter is set to renegotiate a 3-year contract worth more than $700,000.

Jane Nichols, university system chancellor, said the board will likely want to address this issue at the same time her evaluation is due.

"I would be surprised if the board didn't have questions about her involvement in this but it seems extremely premature to link this to her evaluation at this point in time," she said.

The board will meet in December for Harter's evaluation and contraction negotiation.