From the Corrupt Corporation Files: AOL-Time Warner Fraud

while today marks the day that jeff skilling got over 20 years, let's not revel in that. the reality is that the majority of white collar crime goes undetected, unpunished, or UNDER-punished.

case in point: aol tw, where those at the top escaped.


http://www.washingtonpost.com/wp-dyn/content/article/2006/10/22/AR2006102200569_pf.html


AOL Fraud Prosecutors Stop Short Of the Top
Time Ran Out Before Cases Could Be Made

By Carrie Johnson
Washington Post Staff Writer
Monday, October 23, 2006; D01

One of the government's most highly touted accounting-fraud investigations -- into questionable advertising deals at America Online Inc. around the time it merged with Time Warner Inc. -- has apparently hit a dead end, running into the five-year statute of limitations before prosecutors could move as far as they had hoped up the company's corporate ladder.

Despite a lengthy investigation by the U.S. attorney's office for the Eastern District of Virginia, lawyers involved in the case now say the government will not be able to bring criminal charges against top AOL executives over transactions in which the Dulles Internet service provider and its business partners allegedly sought to artificially boost each other's revenue numbers as the dot-com bubble was bursting in 2000 and 2001.

Before the deadline passed, prosecutors filed securities fraud and related charges against two former mid-level AOL executives. They are on trial in a federal court in Alexandria with two former officials of PurchasePro.com Inc., a Las Vegas software maker.

PurchasePro was AOL's partner five years ago in what prosecutors call "round trip" accounting, where no money changed hands but each company claimed to have paid the other for advertising and other services. Such deals, if they are not properly disclosed, can violate accounting rules.

A review of the public record suggests that the leaders of PurchasePro and other AOL business partners paid a far steeper price for their roles in the questionable deals than their counterparts at AOL.

The only former AOL officials to be charged with crimes are Kent D. Wakeford, a former executive director at the company's since-disbanded business affairs unit in New York, and John P. Tuli, a former vice president in AOL's Netbusiness unit in Dulles. Both men, who operated far from the company's highest ranks, are contesting allegations that they struck sham deals with PurchasePro to mislead investors.

Compare that with the top executives of companies that once competed to reach ad agreements with the Dulles company. Charles E. Johnson Jr., the founder of PurchasePro, is on trial on federal charges that he lied to auditors and shareholders about his company's financial health. A half-dozen former PurchasePro employees have already pleaded guilty and could testify against Johnson and a former subordinate, Christopher J. Benyo, in the case.

Meanwhile, earlier this month, Stuart H. Wolff, the former chief executive of Homestore.com, an online real estate venture based in California, was sentenced to 15 years in prison after a jury convicted him of conspiracy, insider trading, filing false reports and lying to auditors in connection with revenue-swapping deals with AOL.

Much of the investigators' interest had been focused on AOL's raucous, since-disbanded business affairs unit, run by David M. Colburn and Eric Keller. Attorneys for both men, who left AOL in 2002, declined to comment for this article.

Among the documents that prosecutors and FBI agents reviewed were internal AOL reports showing declines in the rate of AOL advertising deals before and after its 2001 merger with Time Warner, as well as e-mails and other documents indicating a last-minute race to sign more deals to enable AOL to reach quarterly earnings targets.

At one point in late 2000, Colburn gave an in-house award to Wakeford and a colleague for their work on the PurchasePro account, calling it "science fiction," according to "Stealing Time," a book by Washington Post reporter Alec Klein on the company's accounting practices. Colburn has said he did not recall using that term. Colleagues laughed as Wakeford accepted the award, thanking AOL for its help, Klein wrote.

Lawyers involved in the case, who spoke on condition of anonymity because they have not been authorized to talk about the case, cite many reasons for the apparent dead end.

They noted that the lengthy investigation was run by two different U.S. attorneys in the Eastern District of Virginia and several prosecutors who departed for other jobs. Moreover, while AOL ultimately paid more than $500 million and agreed to cooperate with the government two years ago, none of its high-ranking insiders pleaded guilty and testified against their supervisors. Such assistance was crucial to breaking open complex white-collar investigations of such companies as Enron Corp., WorldCom Inc. and Adelphia Communications Corp.

The trial that starts today is a subdued end to a scandal that prodded Time Warner to restate its financial results twice and agree to a deferred prosecution deal with the Justice Department nearly two years ago. Yet the company continues to experience aftershocks from accounting problems that date to its merger with AOL.

In August, Time Warner said it would restate previous financial reports by $582 million after an independent examiner scrutinized how the company handled advertising revenues in 2000 and 2001, uncovering problems in deals between Time Warner or its AOL unit and 15 business partners. The examiner's report, a condition of the company's settlement with the government, will not be made public, a Time Warner spokeswoman said.

During the investigation, AOL founder Steve Case, Time Warner chief executive Richard D. Parsons and former finance chief Wayne H. Pace gave depositions under oath to securities regulators. The SEC, which has the authority to file civil charges and seek financial penalties and court orders that bar executives from holding certain jobs at public companies, continues to scrutinize former AOL officials, according to interviews and a statement by the agency last year.

But prosecutors' focus now rests squarely on the PurchasePro trial, at which they must simplify scores of complex documents and accounting issues into an easily digestible case about lying to auditors and investors. Assistant U.S. Attorneys Charles F. Connolly and Timothy D. Belevetz, and senior trial counsel Adam A. Reeves declined to comment.

"Kent Wakeford never committed any crime, and that will become apparent during the course of this trial," said defense lawyer Henry W. Asbill. Mark J. Hulkower, a defense lawyer for John Tuli, declined to comment as jury selection proceeded late last week, as did Preston Burton, a lawyer representing PurchasePro's Johnson.

The defense teams received a measure of good news when U.S. District Judge Walter D. Kelley Jr. dropped several charges from the case Oct. 16. But the stakes for those who remain in the case are high. Under federal sentencing guidelines, which are taken under advisement by the judge, each of the former executives could go to prison for several years if convicted.

© 2006 The Washington Post Company

Goin Back to Ojai

i love Ojai.

it has a special place in my history. it's one of southern california's best kept secrets, and i hope it remains that way. i won't have time this week but come the weekend i'll post pics of my trip yesterday up to the Ojai Foundation, the Ojai Film Festival and ... a special place.

Meanwhile, here's a pic of downtown Ojai.

Communities Should Fight Back

my latest email list rant...

folks-

this is long. caveat emptor.

one of my pet peeves - no, major soapbox rants - is the way (in particular but not always limited to) corporations spam and price bully their piggish selves into our lives.

i mention this because everyone i know is fed up with the direction our country is headed. what's needed? among the necessities, here are a few i think are required:

1. motivation: a knowledge base of real-world, concrete examples of individuals and communities doing real things to sustain and empower local communities. i am particularly interested in entrepreneurship that energizes communities through letting ideas from the grassroots flower.

2. networking - a consistent platform, not only virtual but real-world, for people to come together and experience the unique dynamic of synergy. i believe synergy is the one thing that local communities and those individuals possess that is our greatest resource - but also the most under-developed. during the dot-com boom, there was a now legendary tech group that met in santa monica quite regularly - VIC, or the Venice Interactive Community (later, the Virtual Interactive Community, i believe, when it grew). their gatherings were thick with the buzz of "something's in the air." some entrepreneur MUST be out there who can figure out how to cater to a comparable audience around sustainability issues and community empowerment.

3. capital - this may be too obvious but i think the approach to capital is soft-peddled and not met with force in the non-profit or community-based realm. financially struggling is no one's idea of a good time, and i've seen it time and again with non-profits and entrepreneurs. one of the problems is that there is no community-based approach to capital - it's always tied in one form or another to corporations. if an idea is funded, say, by relatives and friends, their concentration is so small as to make it a fairly sizable risk. this is what a lot of filmmakers run into - i hear it all the time.

there is a tribal community in africa i heard of years ago that had a novel - and synergistic - approach to capital. when one of the community members had an idea for a business, the rest of the community would pitch in and fund it. then later, when another had an idea, it would make the same rounds. i'm assuming the ideas had to of course pass muster, but the point is they practiced sound investment fundamentals: minimizing risk by spreading it around in small amounts and diversifying their portfolios. simply: by playing the odds via diversification, their bets (investments are bets) are hedged toward probability.

and the more good bets one places, the greater expectation one has. that is what "odds" are about. this is what professional gamblers do. and make no mistake, investors are no different - they are gamblers. (there are of course contextual distinctions...)

one exciting, community-based approach to capital is MICROLENDING. if you're unfamiliar with the subject, there is perhaps no better example of its power than Vinod Khosla.

what this asian brotha has done is nothing short of miraculous; empowering the poorest of the most oppressed and disenfranchised (ie: third world women of color) - and local communities here need to pry open their minds and begin looking for entrepreneurial examples outside of their narrow confines. khosla's story is nobel prize worthy, and one that i'm confident e.f. shumacher would smile at.


for those of you in LA or who know folks here, there is an event this saturday - local, community-based...

eso won books is an institution in LA's black community, and they are having their opening this saturday - tomorrow - in their new location. what's significant is that their new home is in la's black capital - leimert park.

i mention this not just because i support eso won, but i heard a piece this morning where a local leimert park entrepreneur was talking about the changes in the community - developers gentrifying, raising leases and pricing out locals (residential and commercial) and bemoaning the general decline in the community, mostly due to these changes brought on by the pursuit of profit over communities.

so, support this event (take an umbrella tho, there's a small chance of rain) - who knows, you'll get out and see LA, have a good time in one of the jewels that is our city, and hopefully connect with folks who see it the way we do.

gamblers want action, they seek it out and approach it strategically: i think community-minded folks could learn something from that.

thanks for reading.

-jp