PurchasePro creditors to receive money - Business

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Jun. 30, 2009
Copyright © Las Vegas Review-Journal

PurchasePro creditors to receive money

People owed cash to get $50 million from case

By JOHN G. EDWARDS
LAS VEGAS REVIEW-JOURNAL

Charles "Junior" Johnson
Ex-PurchasePro chief serving a nine-year prison sentence

Las Vegas Mayor Oscar Goodman figured he lost all of the $50,000 he invested in PurchasePro.com, a Las Vegas-based e-commerce company that has been in bankruptcy since September 2002.

Goodman, however, described himself Monday as the "happiest mayor in the world" when he learned that he will get back some of that money thanks to a successful bankruptcy case that recovered more than $50 million for creditors of PurchasePro.com.

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The estate has several million dollars available for distribution to stockholders as well.

However, it's not clear how much stockholders will get because officials have yet to decide which shareholders will be treated as "culpable" insiders, said Greg Garman, managing partner of law firm Gordon Silver and lead attorney for the PurchasePro estate. Culpable insiders will not receive any money for shares they held in PurchasePro, and that will leave more money to divide among other shareholders.

The PurchasePro estate is paying unsecured creditors all they are owed, plus several years of postbankruptcy interest that totals about 20 percent of the principal amount. Bankruptcy officials started mailing checks to unsecured creditors late last week and hope to send checks to about 25,000 former shareholders of PurchasePro stock by the end of the year.

Lisa Poulin, PurchasePro bankruptcy trustee and a senior executive with CRG Partners, said officials are "very delighted" about the money recovered for PurchasePro creditors.

"It's not an everyday event in bankruptcy" to have money left over for stockholders and unsecured creditors, she said.

Garman said: "It's a very rare bankruptcy case that unsecured creditors get paid in full."

Attempts to reach Charles E. Johnson Jr., former chief executive officer and principal founder of PurchasePro, failed. Johnson is serving a nine-year prison sentence for conspiracy to commit securities fraud, securities fraud and obstruction of justice.

The company cooked its financial books to inflate revenue for the first quarter of 2001 in a scheme that the government said involved employees at AOL Time Warner.

Time Warner dropped the "AOL" from its name in 2003, after AOL had lost its dominance as an Internet portal. Time Warner said in May that it will spin off AOL into a separate company.

PurchasePro operated and licensed clients to use company software to solicit bids for goods and services. Its shares shot up during the dot-com boom days before crashing.

At its peak, PurchasePro employed about 1,000 workers, but the number dwindled to less than 20 by the fall of 2002, said Steve Stern, former public relations director.

"I'm grateful to Gordon Silver for getting me the rest of my compensation at PurchasePro and very pleased for the shareholders who can finally see absolute closure in this matter," Stern said.

Mary Alyce Smith, PurchasePro's former vice president of human resources, said: "I think it's nice that a lot of people who were hurt by the process will recover some money. That's a good thing."

Smith believes she already has been paid all that PurchasePro owes her.

Neither Stern nor Smith were accused of wrongdoing at PurchasePro.

Scott Wiegand, the former general counsel of PurchasePro who was acquitted of criminal charges, declined to comment.

Many local residents invested in PurchasePro shares around the turn of the century. Goodman decided to buy shares as well after he met Johnson.

"I was very impressed with his business acumen," Goodman said. "I went into it right before it collapsed."

Goodman said he invested $50,000 in PurchasePro shares, "a lot money to me."

The stock hit a high of $343.75 in December 1999 but traded for a few cents a share after the 2002 bankruptcy filing.

In his mind, Goodman said he wrote off the investment as worthless. So Goodman was pleased to hear that he could get some of his money back.

"It's good news," he said.

PurchasePro obtained bankruptcy court approval in May of a settlement agreement for an undisclosed sum with Gateway Cos. Inc., the computer maker. Already, the estate had judgments against the company then known as AOL Time Warner, Office Depot and American International Group, which provided insurance coverage to PurchasePro.

The PurchasePro estate has also received cash from the sale of its Internet business and collections.

The bankruptcy estate may recover additional sums in the future from defendants convicted of crimes, Garman said.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Robert wrote on June 30, 2009 08:21 PM: AngryHomeOwner: While I understand your frustration, the transience which you advocate is preposterous. "Walk away from the real estate. . . then try for an FHA loan in a few years." Fantastic way to take personal responsibility for your decisions. Excellent job of being a dedicated neighbor, citizen and member of society. FHA Loan? You mean a loan backed by my tax dollars, the monies of the persons who did not abscond from their responsibilities and who are staying here cleaning up the mess that you find so easy from which to walk away? You see--those plans don't screw the lenders; most are largely already screwed. Your plan screws the neighbors, the neighorhood, the community and the principals of any form of responsibility. You will excuse those of us who think that we have some obligation for playing a role in the generation of this storm to weather it. Why pray tell should those persons who felt no shame in abandoning their obligations now be entitled to taxpayer-backed mortgage in a few years? Enjoy the rental--it might be a long stay. Joe wrote on June 30, 2009 11:11 AM: OK, IRS, take note. Oscar wrote off the stock as a loss several years back. Now he is going to recognize a gain. Keep your eyes out for this! AngryHomeOwner wrote on June 30, 2009 09:45 AM: Roger, Larry lives in a garbage can off 'F' street. Don't pay any atttention to imbeciles. Currently there is one class action suit in prgress against IndyMac bank for funneling minorities into the riskier loan programs. Which is funny because IndyMac funneled EVERYBODY into those ARM's because they made triple the money for half the effort. You are absolutely correct about the damage done to buyers of both land and homes in the Vegas valley because of artificial demand due to the tsunami of cash greedy lenders pumped into this market to increase the greedy wall street weasels inventory of ARM backed securities. An Arizona firm is suing one of the homebuilders (I think it's KB) for colluding with the lenders and appraisers to artificially drive up values. Unless yo bought into that builders projects though you cannot join that class action. And I think it is highly unlikely that any firm will take on the massive task of suing all the lenders in this market to recover the money buyers from 2004 to 2006 got ripped off through artificial demand. You can however get some satisfaction by walking away and letting the lenders eat dirt. Sometimes in this screwed up legal system you have to creatively defend yourself. If you are 40% or more underwater, you won't be back to normal for at least 15 years given the history of housing busts in Texas and California. Check out current rentals, and you will see they are about half your mortgage payment for the same model house in the same zip code. Walk away from the real estate, pay off all other debt as quickly as possible in a Chapter 13 plan then try for an FHA loan in a few years. roger wrote on June 30, 2009 07:40 AM: Larry, perhaps you can enlight me in more educated terms rather than just calling me an idiot. Maybe an explanation of supply and demand, economic theories, and some empirical data that supported the prices of years past. Tell me how investors and speculators who flipped houses back and forth didn't create a false sense of demand that caused prices to go up. Tell me there were no shenanigans perpetuated in the real estate and mortgage industry that didn't influence prices. Tell me how you did your due diligence and saw the bubble bursting when most others could not. 70% of the homeowners here are underwater, we have the highest delinquency and foreclosure rates in the country, if I made a bad purchase on a home I'm not the only one. Investor wrote on June 30, 2009 07:28 AM: Roger. Many of the builders paid above average prices for land. They are now suffering because of the bank loans that are due, and inventory that they are sitting on. The real crime is fraud in lending. Larry wrote on June 30, 2009 06:52 AM: Roger, you are an idiot. No one put a gun to your head to buy a house. Obviously when you bought whatever you bought, you thought the price was fair for what you got. Too bad you got ripped off. Next time use due dilligence. roger wrote on June 30, 2009 06:27 AM: Ok so now we are recovering money from those dot.com swindlers of years past for ripping people off big time. When are we going to start recovering cash from the people who did the same thing in the real estate boom years? Does anything think a 'fair market' really determined the outrageous prices many of us paid for our houses?