Lawsuit against PurchasePro founder may not be be pursued

Kevin Rademacher

Friday, May 13, 2005 | 11:18 a.m.

A $6.1 million bankruptcy court lawsuit against PurchasePro.com Inc. founder Charles E. "Junior" Johnson is likely to be abandoned by the estate of the now-bankrupt Las Vegas technology company.

A motion is expected to be filed today indicating that the chance of recovering funds from the embattled Johnson are not worth the legal costs of the trial, which was set to begin Monday.

Gregory Garman, an attorney representing PurchasePro's estate, said that any money the lawsuit was seeking would be difficult to recover even if the estate prevailed since Johnson is subject to so many other claims.

"The estate has done a cost-benefit analysis and -- setting aside the merits of the complaint -- the prospect of recovery doesn't justify the expenditure of resources," said Garman, who is with the law firm of Gordon & Silver Ltd.

In the complaint, the estate was seeking the return of $6.1 million Johnson received from PurchasePro in 2001.

Of that total, $2 million was a "retention bonus" PurchasePro paid to Johnson in April 2001, just a month before he was forced out as chief executive and chairman of the board amid mounting legal trouble for the company.

The balance of the disputed total is $4.1 million paid to Johnson in December 2001 as a cash transfer and a subsequent stock transfer to cover business expenses and unexercised stock options.

The lawsuit claimed the payments were voidable, in part, because they were made while the company was insolvent.

Johnson still faces significant legal battles.

In January, Johnson and other PurchasePro executives were indicted by federal authorities. Johnson faces 13 charges, including conspiracy, securities fraud, wire fraud and obstruction of justice.

At the time, Yale Galanter, a Miami attorney representing Johnson, disputed the allegations.

"Charles Johnson is a corporate American hero," he said in January. "Junior walked away with nothing. His net worth when he ended this deal was worse off than when he started ... He put every dime he had back into the company."

In a separate action brought by the company's estate, Johnson is one of several former directors and officers in the company accused of securities violations, corporate waste and breach of fiduciary duty.

That lawsuit calls into question a series of 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 lawsuit said.

At its pinnacle, PurchasePro, an e-commerce software company founded in 1996, employed about 1,000 people and its stock traded as as high as $188 a share, split-adjusted, in December 1999.

By May 2001, Johnson had been ousted by the company's board of directors amid mounting accounting problems. PurchasePro declared bankruptcy in September 2002, and when the sale of the company's assets to California-based Perfect Commerce was approved by a judge in January 2003, the number of employees had dwindled to about 70. The assets of the company -- which carried a stock value of more than $1 billion in 2000 -- sold for about $2.5 million.