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.
