ALEXANDRIA, Va. -- Two former executives at America Online were among six people charged yesterday with stock fraud and other offenses as part of the federal government's ongoing investigation into illegal accounting practices at AOL.
The other four individuals charged were executives at a defunct Las Vegas-based software firm called PurchasePro. Prosecutors say the two companies entered into secret deals to help PurchasePro inflate its revenues in early 2001.
Yesterday's indictment brings to 12 the number of people charged during the government's multiyear investigation of AOL and PurchasePro. Six other former PurchasePro executives, including the cofounder, have previously pleaded guilty.
The indictment charges Kent Wakeford, 36, of New York City, former executive director at AOL's business affairs unit, and John Tuli, 37, of Weston, a former vice president in AOL's NetBusiness unit, with securities fraud, making false statements to auditors, and wire fraud.
Wakeford and Tuli are the first two AOL employees to be charged. Court papers released last month indicated that as many as six people at AOL may have been involved in the PurchasePro transactions.
US Attorney Paul McNulty said yesterday that Wakeford and Tuli are two of the six, and declined to comment on the status of the other four except to say that the investigation continues.
McNulty said the indictment ''lays out a story of deception and fraud" that included secret contracts, forged contracts, and ''revenue swaps," in which companies would agree to buy software from PurchasePro only if PurchasePro agreed to buy goods and services from those companies.
The deals allowed PurchasePro to post illusory revenue figures and meet Wall Street projections.
''It shows a story of trying to create an appearance of success in business when it just wasn't there," McNulty said.
AOL, a unit of Time Warner Inc., benefited from the deals because it received options to buy PurchasePro stock and therefore had an incentive to support the masquerade that PurchasePro was a healthy company, McNulty said.
The PurchasePro executives charged are Charles ''Junior" Johnson, 43, of Las Vegas, former chief executive; Christopher Benyo, 43, of Greer, S.C., former senior vice president of marketing; Joseph Michael Kennedy, 51, of Morristown, N.J., former chief technology officer; and Scott Wiegand, 36, former general counsel.
According to the indictment, Johnson worked out of AOL's New York offices in March 2001 with Wakeford and others trying to sell PurchasePro's core product, a ''marketplace license" that supposedly facilitated business-to-business transactions.
When they could not sell the licenses, they cut side deals to ensure that companies who bought the licenses would be reimbursed in some way. Among the companies that entered into side deals were Cisco, Hewlett-Packard, Homestore, Monster, Spherion, and Travelocity, according to the indictment.
Wakeford's attorney, Henry Asbill, said his client will plead not guilty. Asbill said he had not seen the indictment and declined to comment on the specific allegations. Johnson's attorney, Yale Galanter, said Johnson never profited from founding PurchasePro and never accepted any stock options even when the company's stock exceeded $350 a share.