Lexington native convicted of fraud over $1 billion company faces new charges
Lexington Herald-Leader (KY)
A Lexington native who founded a company once valued at more than $1 billion but later went to prison for fraud is facing new charges.
A federal grand jury in Lexington indicted Charles E. Johnson Jr. on Thursday for allegedly giving false information to the U.S. Probation Office, which was supervising him as part of his earlier sentence.
The supervision included a requirement for Johnson to give his probation officer financial information, including a net worth statement and a monthly cash flow statement. The grand jury charged that Johnson did not disclose his control and use of a company’s bank account. The charges identified the business only as Company A.
The indictment alleges Johnson identified three people as contractors for Company A and said payments to them were for work they’d done or would do, but that the statements were false because Johnson paid the contractor’s from the company’s accounts “for companionship and other services personal to him.”
The charges carry a maximum penalty of up to five years each.
The court file does not list an attorney for Johnson, and attorneys who represented him in a related matter earlier this year were not available for comment.
Johnson, a Lexington native who led Lafayette High School to the Kentucky boys’ basketball championship in 1979, was an internet sensation for a time during the dotcom boom of the late 1990s, and a significant civic booster in Lexington.
He founded PurchasePro, a company that provided software to allow businesses to buy and sell with one another over the internet.
After it went public in 1999, the company reached a market capitalization of $1.2 billion during the dot-com boom, when investors snapped up shares of emerging internet companies.
Johnson, who is about 61 now, had a mansion in Las Vegas and a private airplane, and made millions in charitable contributions in Kentucky, including $2 million for a new gym at Lexington Catholic High School.
More than $200 million flowed into Kentucky in the early days to investors who had backed Johnson, but within three years, he had quit and the company went bankrupt, costing other investors millions who hadn’t gotten out in time.
Federal authorities later charged that Johnson had falsely inflated the value of PurchasePro during a deal with American Online.
Convicted of fraud
Johnson and six other PurchasePro employees were convicted in the case and AOL reportedly paid $210 million to settle allegations that it aided stock fraud at PurchasePro.
Johnson was convicted of conspiracy, securities fraud, witness tampering and obstructing an official proceeding, according to court records.
He was ordered to pay $9.7 million in restitution and sentenced to nine years in prison, followed by three years of court supervision.
Johnson was almost at the end of his period of supervision when the probation office accused him in March 2019 of not providing financial information as required.
Johnson, who had paid $10,729 toward his $9.7 million restitution debt by late March 2019, lost a total of $442,190 gambling at a Las Vegas casino in 2018 but didn’t report it to the probation office and also didn’t report his interest in several companies, federal authorities alleged.
Johnson also allegedly didn’t report an interest in several companies.
Johnson’s deception interfered with the assessment of his ability to pay restitution, Assistant U.S. Attorney Paul McCaffrey said in a motion.
Johnson said he had not committed a reporting violation because he was gambling corporate money, not his own, but Chief U.S. District Judge Danny C. Reeves revoked his probation and sentenced him to 10 more months in prison, followed by 26 more months of supervised release.
He would have completed his latest period of supervision in September, according to one court document.
Earlier this year, attorneys for Johnson asked to transfer his supervision from Lexington to Las Vegas so he could start a new job. The job would allow him to make greater restitution payments, the motion said.
Johnson said in an affidavit with the motion that his relationship with his probation officer was adversarial and that the officer was trying to sabotage his job offer.
“He’s focused on trying to find or manufacture a violation instead of helping me transition back into society,” Johnson said.
In a response, the prosecutor called the allegations “outlandish” and said they suggested his main motive for requesting a transfer “is relaxed oversight of his activities.”
McCaffrey said Johnson “has a documented history of lying to courts, investigators, and judicial officers.”
The government opposed the transfer, and Reeves denied it.