And AOL’s screw-the-stockholder award goes to…

Kent D. Wakeford, former executive affairs director of AOL’s now-defunct NY business unit. It’s a real award (as far as he was concerned) and was bestowed upon him by his former boss, David Colburn. In Colburn’s speech about it, he called Kent’s deal-making with PurchasePro, their former business partner:

“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.

Now let me explain the rest, in case you missed AOL’s biggest gravy train of the decade and one of the most talked-about accounting fraud scandals of all time. Here’s how this very profitable and face-saving racket worked, according to the Boston Globe:

[US Attorney Paul] McNulty said the indictment [against AOL] “lays out a story of deception and fraud” that included secret contracts, forged contracts, and “revenue swaps,” in which companies would agree to buy software from PurchasePro only if PurchasePro agreed to buy goods and services from those companies.

The deals allowed PurchasePro to post illusory revenue figures and meet Wall Street projections.

It shows a story of trying to create an appearance of success in business when it just wasn’t there,” McNulty said.

AOL, a unit of Time Warner Inc., benefited from the deals because it received options to buy PurchasePro stock and therefore had an incentive to support the masquerade that PurchasePro was a healthy company, McNulty said.

The business unit behind this lucrative mess was once run by Wakeford, the only employee of AOL charged with conspiracy now besides John P. Tuli, former vice president of AOL’s NetBusiness unit in Dulles, Virginia. Six AOL executives were charged with the crime on January 11, 2006, but charges have since been dropped against the other four.

Not only that, the defense is pursuing dismissal (and the latest buzz says the judge will grant it) so it might be time for AOL to hand out yet another “science fiction” award. I’d like to see one in memory of Jon Miller, for the “science fiction” that AOL is making significant ad revenue gains in any unit besides lucrative-of-late advertising.com. Anyone with me on that?

While AOL’s execs may start pouring champagne on each other once they get away with this, PurchasePro’s defense team will be trying to sharpen their strategy, because their clients, oddly enough, are in a world of trouble for the same financial crimes AOL committed right alongside them. (AOL can thank their lucky stars for snafus like the statute of limitations, which conveniently ran out in their case.) According to this Washington Post article:

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.

AOL could use at least one honest person, like the former general counsel of PurchasePro, who was also indicted on charges of conspiracy in the scandal but later acquitted. His name is Scott Weigand and he wrote for law.com:

I consider myself a whistle-blower. In May 2001, because of concerns I had about the activity of certain members of the company’s senior management team, I pushed for the creation of a special committee of PurchasePro’s board. I wanted the committee to investigate the circumstances leading up to the company’s 2001 first-quarter earnings call. As a result of the special committee’s investigation, the CEO and two other executives were fired. The company delayed filing its Form 10-Q with the SEC, ultimately reducing its stated revenue for the period by about 40 percent from what it previously announced.

I felt vindicated when the judge who acquitted me said that I “did a very good job of handling an extraordinarily difficult situation.”