Jeffrey R. Anderson, PurchasePro's former senior vice president of sales and strategic development, pleaded guilty to charges of inflating the company's revenue during the fourth quarter of 2000 and the first quarter of 2001. Scott H. Miller, the former controller, entered a guilty plea for obstructing a federal criminal investigation.
PurchasePro had been under investigation by the Justice Department and the Securities and Exchange Commission for improperly reporting revenue from its deal with AOL Time Warner's America Online unit. The media giant is also under investigation by the Justice Department and the SEC, which prompted the company toby $190 million.
The Justice Department statement does not name AOL Time Warner but refers to a "major media company headquartered in the United States" as a co-conspirator in the fraud charges.
Anderson and Miller entered their pleas Tuesday during a hearing in U.S. District Court in Alexandria, Va.
According to the Justice Department, Anderson and an employee at the media company engaged in a complex shell game that was hidden from auditors and investors. PurchasePro offered the media company employee $30 million in warrants, which the employee exchanged for future guarantees of revenue for PurchasePro, the Justice Department said. These guarantees were achieved when the media company employee entered into side deals with suppliers and partners that then bought PurchasePro software licenses, the department said.
Through this "round trip" scheme, the Justice Department said, PurchasePro and the media company booked their tit-for-tat agreements as revenue.
"These actions were not only unethical, they violated federal laws," U.S. Attorney Paul J. McNulty said in a statement regarding Anderson's actions. "In short, you cannot cook the books to make it look like you earned more money than you really did. That is illegal."
Miller pleaded guilty to failing to hand over documents involving these deals to the SEC, lying under oath to the SEC and attempting to destroy these related documents.
Anderson faces up to five years in prison and a fine of up to $250,000. Miller faces a maximum of 20 years in prison and a $250,000 fine.
An AOL representative declined to comment.