WASHINGTON — The federal government filed criminal charges against two former executives at America Online on Monday as part of its ongoing investigation into illegal accounting practices at the Internet giant.
A federal grand jury indicted Kent Wakeford, former executive director at AOL’s business affairs unit, and John Tuli, a former vice president in AOL’s NetBusiness unit, on charges of securities fraud, making false statements to auditors and wire fraud.
Four former executives of defunct Las Vegas-based software firm PurchasePro were also named in the indictment, bringing the total number of PurchasePro employees charged thus far in the investigation to 10. Wakeford and Tuli are the first former AOL executives to be charged.
Court papers indicate indictments against as many as four more AOL officials may be coming.
Secret deals cited
The government claims AOL and PurchasePro struck secret deals in 2001 to help PurchasePro inflate its earnings in order to meet Wall Street projections.
The indictment “lays out a story of deception and fraud,” said U.S. Attorney Paul McNulty. “It shows a story of trying to create an appearance of success in business when it just wasn’t there.”
AOL and PurchasePro allegedly forged bogus deals with other companies in which they would buy software from PurchasePro, in exchange for which PurchasePro would buy goods and services from them. For instance, the indictment claims Wakeford and others sold a “marketplace license” — PurchasePro’s core product, ostensibly a facilitator of business-to-business transactions.
But in some cases, instead of an outright sale, the defendants agreed to secretly reimburse the buyers in some way. On paper, therefore, PurchasePro looked more successful that it really was.
AOL gained from the arrangement through receiving options to buy PurchasePro stock, which the defendants hoped would rise as PurchasePro appeared to be doing well.
Wakeford’s attorney said his client will plead not guilty and fight the charges.
(The Associated Press contributed to this report.)