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Airline Cell Phone Ban Lifted?; AOL Charged With Aiding and Abetting Securities Fraud
Aired December 15, 2004 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: They are armed, wired with explosives and holding seven people hostage on a bus outside Athens, Greece. The two gunmen, believed to be Albanians, say that they will blow up the bus if they don't get $1.3 million in ransom by tomorrow morning. So 16 captives have been freed in this daylong drama.
The Iraqi general known as "Chemical Ali" will be one of the first in line as Iraq's old regime faces justice. Interim Prime Minister Ayad Allawi has said war crimes trials would begin next week. But a CNN source says there will actually be pre-trial proceedings to see if trials are even warranted.
Also this hour, the poisoning scandal in Ukraine. Viktor Yushchenko's dioxin level is 6,000 times the normal concentration according to the expert analyzing his blood. The Dutch toxicologist, quoted by Associated Pres, says he'll soon know the strain that Yushchenko was given.
President Bush sends a warning to Iran and Syria to mind their own business when it comes to Iraq. Speaking with reporters, Mr. Bush says that meddling in Iraq's internal affairs would not be in either's best interest.
FREDRICKA WHITFIELD, CNN ANCHOR: And welcome back to LIVE FROM, I'm Fredricka Whitfield.
PHILLIPS: And I'm Kyra Phillips. First this hour, the poisoning scandal in Ukraine, some shocking new details. Today we have learned that before election, rigged (ph) for his opponent (ph), the reformist politician who ingested dioxin got a dose that was truly massive. CNN's Jill Dougherty is at the Ukrainian capital to give us the very latest.
JILL DOUGHERTY, CNN CORRESPONDENT: Well, Kyra, that report really is shocking. Six thousand times the normal level of dioxin. And they said it's only the second person, the second person in human history who had that much.
So it's very serious. And it has really become pretty much an issue on the campaign. Mr. Yushchenko was back on the campaign, the first time that he has been on the trail and talking to his people since those reports from the doctors. He went downtown in Kiev to the tent city where his supporters have been in the freezing cold for three weeks, signed some autographs, talked with people. And then he huddled with some of his regional leaders of his party, because they are gearing up for this new election, the repeat of the runoff that will be taking place December 26.
Now Mr. Yushchenko says that he is healthy except for his face.
(BEGIN VIDEO CLIP)
VIKTOR YUSHCHENKO, UKRAINIAN PRESIDENTIAL CANDIDATE (through translator): In one or two days I will receive a report from the clinic about my health. And that report will say that I have no problems with my internal organs, that I am a physically healthy person. The visual effects of this will be dealt with, but unfortunately, I must say for some time, we'll just have to accept this.
(END VIDEO CLIP)
DOUGHERTY: And Kyra, he also mentioned some new details about that dinner with the leadership of Ukraine's secret service where he alleges that he was poisoned. He said that actually he did not eat or drink everything that they gave him, and that the government was actually trying to kill him. But he says it didn't work.
And then he finally added the real problem is that I am still alive.
PHILLIPS: Jill, he talks about the allegations that he was poisoned in his food. And you talk about allegedly by the government. Has he named anyone specifically, any individual specifically, has he even named Vladimir Putin?
DOUGHERTY: He has not at all. He basically says it's the Ukrainian government. But interestingly, even at this point he was saying that the investigation, and there are actually two of them that are going on, the parliament's and the prosecutor's office, he doesn't want those really to be done during this election campaign. With just a little less than two weeks, he said it's very, very sensitive.
But I think you can say he really feels that after the election we are going to be hearing some more details about this.
PHILLIPS: OK. Jill Dougherty. And also, he talked about -- he doesn't believe anything is going to be wrong with his internal organs, but his skin, can that get better, can that be taken care of or could that get worse?
DOUGHERTY: It could actually -- at this point, it has gotten a little bit worse as apparently this poison is working its way out of his system. But the doctors are saying that that type of damage can really last literally for years. So that could be a long time. And he said -- he has actually apologized for the way he looks. He said, I wish I looked the way I did three months, but I don't and I can't, and we just have to get through this period.
PHILLIPS: Jill Dougherty, live from Kiev, Ukraine. Thank you so much.
Insurgents take aim at one of the holiest shrines in Shiite Islam. An aide to Iraq's top Shiite cleric, Grand Ayatollah Ali al- Sistani, was one of 32 Iraqis wounded when an improvised explosive device detonated outside the Imam Hussein Mosque in Karbala. Seven Iraqis were killed.
Also today in Iraq, the defense ministry says "Chemical Ali" will be the first of the fallen regime to stand trial for war crimes. That trial could come before the end of the month. The former Iraqi general, Ali Hassan al-Majid allegedly ordered the deadly chemical attack against the Iraqi Kurds in 1988.
WHITFIELD: I want to take you to Washington and show you a live picture right now. There at the Justice Department, apparently an announcement will be coming soon, comments coming from the Justice Department following a settlement with Time Warner, which is the parent company of CNN, they've reached a settlement over allegations of fraud at the company's AOL division.
It means that Time Warner is agreeing to pay $210 million in fines, $60 million of which apparently of that settlement that will go to the government in fines, and the remaining $150 million is apparently earmarked for a fund to pay for settlements of other actions arising from securities fraud charges.
So once again, a settlement between Time Warner and the Justice Department -- which apparently a statement coming out of the Justice Department momentarily in Washington there.
Well, a new study questions the wisdom of inoculating the public against anthrax before a possible bioterror attack. In the scientific journal Nature, two Johns Hopkins researchers suggest rapid response makes more sense. They say delivering antibiotics within six days of exposure can prevent up to 70 percent of anthrax cases.
Now to that press conference in Washington coming out of the Justice Department on the settlement being reached with Time Warner, the parent company of CNN.
Let's listen in.
JAMES COMEY, DEPUTY ATTORNEY GENERAL: Good afternoon, folks. I'm here today with Assistant Attorney General Chris Wray, United States Attorney Paul McNulty from the Eastern District of Virginia, and Assistant Director of the FBI Chris Swecker.
We are here to announce significant developments in the continuing corporate fraud investigation involving American Online, the Internet company, which is a wholly owned subsidiary of Time Warner, Inc.
In a criminal complaint that was filed today in the Eastern District of Virginia, the government has charged AOL with aiding and abetting securities fraud.
The charges arise out of a scheme to falsify the financial results of a company called PurchasePro, which was a dot-com startup that is now bankrupt. Separately, four former PurchasePro executives have agreed to plead guilty in the Eastern District of Virginia to felony charges based on their roles in the scheme.
AOL and its parent, Time Warner, have accepted responsibility for the criminal conduct of their employees and have entered into agreements with the government that involve the charges against AOL, which were filed today, being deferred for a period of two years. That means if, and only if, AOL complies with a lengthy agreement with the Department of Justice, the felony charges in the complaint will be dismissed two years from now.
That agreement requires AOL to pay a total of $210 million, to cooperate fully in the government's ongoing investigation, and to undertake a wide range of corporate reforms.
The investigation is continuing. As part of its agreement, AOL has stipulated to a statement of facts that was filed in court in the Eastern District of Virginia that lays out the scheme involving AOL and PurchasePro. Let me give you a brief overview of that scheme.
In March of 2000, AOL and PurchasePro became partners in an effort to use the Internet to create a business-to-business marketplace. AOL had set up something called a Netbusiness platform and PurchasePro sold software that could be used to do business on that platform.
PurchasePro agreed to pay AOL purchase pro agreed to pay AOL $70 million and gave AOL 100 million warrants. In return, AOL agreed to put PurchasePro on its Netbusiness Web site and to provide Internet advertising and other services to PurchasePro.
As so often happened during the dot-com bubble days, the revenues that AOL and PurchasePro were counting on did not materialize. And instead of confronting that harsh reality, AOL and PurchasePro cooked up a scheme to inflate PurchasePro's revenues.
For example, AOL paid millions of dollars to buy products from PurchasePro that AOL had no use for. AOL also made secret deals with companies to buy products from PurchasePro that were hidden from PurchasePro's auditors. AOL also mislead PurchasePro's auditors by making false statements about its transactions with PurchasePro.
As a result of this scheme, PurchasePro reported at least $10 million in bogus revenue for the fourth quarter of 2000 and announced at least $20 million in false revenue in the first quarter of 2001.
AOL had a very strong motive to create the appearance of high revenues on the part of PurchasePro, because the value of the warrants AOL had received in the deal depended on PurchasePro's performance.
As a result of the scheme, AOL itself had about $20 million in additional revenue in the fourth quarter of 2000 and about $15 million in the first quarter of '01.
Let me turn to the individual guilty pleas that I mentioned. The four defendants who will plead guilty are Robert Geoffrey Layne of Lexington, Kentucky, a co-founder and former executive vice president at PurchasePro who has agreed to plead guilty to securities fraud. Shawn McGhee of Memphis, Tennessee is a former chief operating officer at PurchasePro, who has agreed to plead guilty to conspiracy to commit securities fraud. Dale Boeth of Roanoke, Texas, is a former vice president at PurchasePro, and he has agreed to plead guilty to conspiracy to commit securities fraud.
And last, James Sholef of Las Vegas, Nevada, also a former vice president at PurchasePro, has agreed to plead guilty to perjury.
Those four men have also entered into settlements involving civil enforcement actions, brought against them by the SEC.
Two other former PurchasePro executives have previously pleaded guilty, back in September of 2003, and have already been sentenced. And as I said, this investigation is continuing.
Let me go back now to the deferred prosecution agreement that I mentioned involving AOL and its parent, Time Warner. The agreements we have reached today with America Online and Time Warner give the company a chance to turn itself around and avoid the consequences of a criminal conviction.
One reason we agreed to defer prosecution was to minimize the collateral consequences of an indictment, which would have been borne by innocent employees and investors.
But this deferred prosecution agreement did not come cheap for AOL. We have balanced our concern for innocent parties against the important need to send a strong deterrent message and to protect the rights of victims.
Here are some of the measures that we have insisted on as part of this agreement to defer prosecution if they abide by the agreement over a two-year period.
Both AOL and Time Warner, as I have mentioned, have acknowledged the criminal conduct of their employees and have accepted responsibility for that conduct. As I mentioned earlier, AOL will pay a total of $210 million. That includes $150 million to be paid into a compensation and settlement fund and a $60 million criminal penalty to be paid to the United States Treasury.
AOL is required to cooperate fully in the ongoing investigation of PurchasePro, that transaction and also in connection with a variety of other transaction.
AOL is required further to adopt a wide range of internal controls that are designed to deter future misconduct by its employees and foster the critical corporate culture of respect for the law that we want to see in every company in America.
They also agreed that an independent monitor will be appointed to review AOL's compliance with the agreement and to report back regularly to the Department of Justice.
If AOL fails to comply with the agreement, the deal is off, and they are in a world of trouble, because we can proceed to trial based on the stipulated statement of facts that was filed in Eastern District of Virginia court.
I want to thank and congratulate Assistant Attorney General Chris Wray, United States Attorney Paul McNulty from the Eastern District of Virginia. I, on their behalf, also want to recognize the hard work of the prosecutors who've worked on the case: Adam Reeves, Charles Connolly, Dana Bente (ph) and Kevin DiGregory (ph).
I also want to thank the staff of the SEC for the usual fine work in helping with this investigation.
And lastly I want to commend the outstanding work, again as usual, of the FBI, represented here by Assistant Director Swecker, and note that the bureau's Washington field office continues to play a critical role in this ongoing investigation.
Now I would like to introduce Assistant Director Swecker -- Chris.
WHITFIELD: All right, out of Washington, the Justice Department explaining what they are calling a deferred prosecution involving a settlement of Time Warner, the parent company of CNN, after reaching a $210 million settlement over allegations of fraud at the company's AOL division -- Kyra.
PHILLIPS: We're just going to take a quick break. We'll be right back.
(COMMERCIAL BREAK)
PHILLIPS: Using cell phones during flight, well, the SEC is talking about allowing it.
And we've got to wonder, if you're able to talk a mile a minute on the ground, how do you calculate the speed of speech at cruising altitude? Don't forget to factor in the square root of your seat mate's annoyance, by the way.
Tim Jarrell joins me now from New York to talk about it, talk about the talk, I guess. He's the head of publishing for "Fodor's" travel guide. And he has got a finger on the pulse of the traveling public.
By the way, we're still taking your e-mails on this. So e-mail us.
Good to see you, Tim.
TIM JARRELL, "FODOR'S": Good afternoon, Kyra.
PHILLIPS: All right, so, is there a huge hue and cry to have cell phones on airlines?
JARRELL: Well, I think, if you ask most passengers, that they would say no, don't put cell phones on airplanes. But it will happen. It may take two or three years, but I think that the airlines want it. Business travelers want it. And I also think the telephone and telecommunication companies want it as well. So we're going to see it one way or another.
PHILLIPS: So you definitely think this is going to pass because of the financial aspect? It could mean money for the airlines, money for the companies.
JARRELL: Well, I think the airlines want it because their business travelers are demanding it. I think the communication companies want it because in fact it is a new revenue source and it expands what they're doing to 30,000 feet. And, also, I think that the FCC wants to see this kind of technology in airplanes.
PHILLIPS: It says here the Federal Communications Commission has decided to seek comments now from the public about ending the ban on the in-flight use of cell phones. Is it possible that the public could come out with so many demands not to make this happen that the FCC could say, OK, forget it; it won't happen?
JARRELL: I don't think so.
I think that you are going to see a lot of people in the public say they don't want it, but, in the end, I think that the question is about technology. It's about safety on the airplanes. And no matter how much you and I might not want it personally for other passengers, I think you are going to see this pretty soon.
PHILLIPS: All right, as you can imagine, we're getting tons of e-mails. And I want to read you some of these.
Judi in Minnesota says: "Oh, great, now the same people who annoy us with loud, uncensored cell phone conversations in restaurants can talk nonstop from takeoff to landing. When did we get all so important that we can't be just a phone call away from our family, friends and colleagues?"
Let me ask you this, Tim. What about just a cell phone section on the airplane? Would that work?
JARRELL: It's hard for me to imagine how that would work. It kind of reminds you of the old no-smoking and smoking sections maybe 15, 20 years ago that were on the airplanes.
It's just a little bit difficult for me to imagine how that might happen, but it's possible. Maybe the airlines might come up with that kind of solution. But what about first class? First class in a lot of airplanes is six, eight, 10 seats. It's hard to segregate phones within such a small space.
PHILLIPS: All right, Sandi in Connecticut says: "Can we put the cell phone users on special planes, the ones that have to sit on the runway in the penalty boxes and the ones who have mechanical problems, etcetera? My guess is, if there were additional charges for using a cell phone in the air, there would be less people trying to prove their importance and more people would wait until they landed. If the smokers can wait, then the talkers can wait as well."
Now, we sort of touched on that. Let's talk about the fact that even the phones on the aircrafts now, the airplanes now, you never see people using those because they are so expensive. Could cell phones be cheaper than that?
JARRELL: Well, I think cell phones will be cheaper than that. I think the current price on airplanes phones is now $3.99. They are expensive. Their quality isn't very good. My guess is that the cell phone -- cell phones will certainly be cheaper. How it will be priced, I'm not quite sure. But it will be a lot cheaper. And it may be just part of your basic plan.
PHILLIPS: All right. You also did a survey. "Fodor's" actually did a survey, men vs. women, who breaks the rules most. And it turns out men actually get on the cell phone or leave it on more than women and also are the first ones to turn them on once the plane hits the tarmac.
JARRELL: Well, this may come as no surprise. But it is true we did a survey. And we found out that 5 percent of travelers in general do not turn their cell phones off on airplanes. And, shock of all shocks, men, 2-1, one, are more likely not to turn off their cell phones than women. I'm not going to make a comment.
PHILLIPS: All right.
JARRELL: But that's what the results were.
PHILLIPS: That's what the results said.
Well this, e-mail that we just got in, I want to -- I was saying -- because we were getting all these e-mails of people that don't want them. But this one just came in from Captain Joe Bough (ph), which I think is sort of funny.
He says: "Here's the solution. Have a cell phone section of the plane" -- we mentioned that -- "where airlines charge $10 to $25 extra to sit in that section. This keeps all the loudmouth phonies who continually use the phones herded together to annoy each other and not civil people."
That's an interesting idea, charge a little more.
JARRELL: Charge a surcharge, $25, so that you can strut your ego and have your cell phone. And maybe, you know, there's a decibel price as well, so if you talk in a whisper, the surcharge is $5. But if you bellow and, according to your self-importance, it could be $30, $40. And maybe your fellow passengers should vote.
(LAUGHTER)
PHILLIPS: There you go, get involved with the FCC in how they are asking for comments now.
Tim Jarrell from New York, thank you so much. Continue to read those travel guides from "Fodor's." We all do. But it's interesting input today. Thanks, Tim.
JARRELL: Thank you, Kyra.
PHILLIPS: OK -- Fred.
WHITFIELD: Well, cell phone or not, are you a high roller? A first-of-its-kind public offering in Vegas. Details straight ahead on LIVE FROM.
(COMMERCIAL BREAK)
(STOCK MARKET UPDATE)
WHITFIELD: Well, that's going to do it for this Wednesday's edition of LIVE FROM.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired December 15, 2004 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: They are armed, wired with explosives and holding seven people hostage on a bus outside Athens, Greece. The two gunmen, believed to be Albanians, say that they will blow up the bus if they don't get $1.3 million in ransom by tomorrow morning. So 16 captives have been freed in this daylong drama.
The Iraqi general known as "Chemical Ali" will be one of the first in line as Iraq's old regime faces justice. Interim Prime Minister Ayad Allawi has said war crimes trials would begin next week. But a CNN source says there will actually be pre-trial proceedings to see if trials are even warranted.
Also this hour, the poisoning scandal in Ukraine. Viktor Yushchenko's dioxin level is 6,000 times the normal concentration according to the expert analyzing his blood. The Dutch toxicologist, quoted by Associated Pres, says he'll soon know the strain that Yushchenko was given.
President Bush sends a warning to Iran and Syria to mind their own business when it comes to Iraq. Speaking with reporters, Mr. Bush says that meddling in Iraq's internal affairs would not be in either's best interest.
FREDRICKA WHITFIELD, CNN ANCHOR: And welcome back to LIVE FROM, I'm Fredricka Whitfield.
PHILLIPS: And I'm Kyra Phillips. First this hour, the poisoning scandal in Ukraine, some shocking new details. Today we have learned that before election, rigged (ph) for his opponent (ph), the reformist politician who ingested dioxin got a dose that was truly massive. CNN's Jill Dougherty is at the Ukrainian capital to give us the very latest.
JILL DOUGHERTY, CNN CORRESPONDENT: Well, Kyra, that report really is shocking. Six thousand times the normal level of dioxin. And they said it's only the second person, the second person in human history who had that much.
So it's very serious. And it has really become pretty much an issue on the campaign. Mr. Yushchenko was back on the campaign, the first time that he has been on the trail and talking to his people since those reports from the doctors. He went downtown in Kiev to the tent city where his supporters have been in the freezing cold for three weeks, signed some autographs, talked with people. And then he huddled with some of his regional leaders of his party, because they are gearing up for this new election, the repeat of the runoff that will be taking place December 26.
Now Mr. Yushchenko says that he is healthy except for his face.
(BEGIN VIDEO CLIP)
VIKTOR YUSHCHENKO, UKRAINIAN PRESIDENTIAL CANDIDATE (through translator): In one or two days I will receive a report from the clinic about my health. And that report will say that I have no problems with my internal organs, that I am a physically healthy person. The visual effects of this will be dealt with, but unfortunately, I must say for some time, we'll just have to accept this.
(END VIDEO CLIP)
DOUGHERTY: And Kyra, he also mentioned some new details about that dinner with the leadership of Ukraine's secret service where he alleges that he was poisoned. He said that actually he did not eat or drink everything that they gave him, and that the government was actually trying to kill him. But he says it didn't work.
And then he finally added the real problem is that I am still alive.
PHILLIPS: Jill, he talks about the allegations that he was poisoned in his food. And you talk about allegedly by the government. Has he named anyone specifically, any individual specifically, has he even named Vladimir Putin?
DOUGHERTY: He has not at all. He basically says it's the Ukrainian government. But interestingly, even at this point he was saying that the investigation, and there are actually two of them that are going on, the parliament's and the prosecutor's office, he doesn't want those really to be done during this election campaign. With just a little less than two weeks, he said it's very, very sensitive.
But I think you can say he really feels that after the election we are going to be hearing some more details about this.
PHILLIPS: OK. Jill Dougherty. And also, he talked about -- he doesn't believe anything is going to be wrong with his internal organs, but his skin, can that get better, can that be taken care of or could that get worse?
DOUGHERTY: It could actually -- at this point, it has gotten a little bit worse as apparently this poison is working its way out of his system. But the doctors are saying that that type of damage can really last literally for years. So that could be a long time. And he said -- he has actually apologized for the way he looks. He said, I wish I looked the way I did three months, but I don't and I can't, and we just have to get through this period.
PHILLIPS: Jill Dougherty, live from Kiev, Ukraine. Thank you so much.
Insurgents take aim at one of the holiest shrines in Shiite Islam. An aide to Iraq's top Shiite cleric, Grand Ayatollah Ali al- Sistani, was one of 32 Iraqis wounded when an improvised explosive device detonated outside the Imam Hussein Mosque in Karbala. Seven Iraqis were killed.
Also today in Iraq, the defense ministry says "Chemical Ali" will be the first of the fallen regime to stand trial for war crimes. That trial could come before the end of the month. The former Iraqi general, Ali Hassan al-Majid allegedly ordered the deadly chemical attack against the Iraqi Kurds in 1988.
WHITFIELD: I want to take you to Washington and show you a live picture right now. There at the Justice Department, apparently an announcement will be coming soon, comments coming from the Justice Department following a settlement with Time Warner, which is the parent company of CNN, they've reached a settlement over allegations of fraud at the company's AOL division.
It means that Time Warner is agreeing to pay $210 million in fines, $60 million of which apparently of that settlement that will go to the government in fines, and the remaining $150 million is apparently earmarked for a fund to pay for settlements of other actions arising from securities fraud charges.
So once again, a settlement between Time Warner and the Justice Department -- which apparently a statement coming out of the Justice Department momentarily in Washington there.
Well, a new study questions the wisdom of inoculating the public against anthrax before a possible bioterror attack. In the scientific journal Nature, two Johns Hopkins researchers suggest rapid response makes more sense. They say delivering antibiotics within six days of exposure can prevent up to 70 percent of anthrax cases.
Now to that press conference in Washington coming out of the Justice Department on the settlement being reached with Time Warner, the parent company of CNN.
Let's listen in.
JAMES COMEY, DEPUTY ATTORNEY GENERAL: Good afternoon, folks. I'm here today with Assistant Attorney General Chris Wray, United States Attorney Paul McNulty from the Eastern District of Virginia, and Assistant Director of the FBI Chris Swecker.
We are here to announce significant developments in the continuing corporate fraud investigation involving American Online, the Internet company, which is a wholly owned subsidiary of Time Warner, Inc.
In a criminal complaint that was filed today in the Eastern District of Virginia, the government has charged AOL with aiding and abetting securities fraud.
The charges arise out of a scheme to falsify the financial results of a company called PurchasePro, which was a dot-com startup that is now bankrupt. Separately, four former PurchasePro executives have agreed to plead guilty in the Eastern District of Virginia to felony charges based on their roles in the scheme.
AOL and its parent, Time Warner, have accepted responsibility for the criminal conduct of their employees and have entered into agreements with the government that involve the charges against AOL, which were filed today, being deferred for a period of two years. That means if, and only if, AOL complies with a lengthy agreement with the Department of Justice, the felony charges in the complaint will be dismissed two years from now.
That agreement requires AOL to pay a total of $210 million, to cooperate fully in the government's ongoing investigation, and to undertake a wide range of corporate reforms.
The investigation is continuing. As part of its agreement, AOL has stipulated to a statement of facts that was filed in court in the Eastern District of Virginia that lays out the scheme involving AOL and PurchasePro. Let me give you a brief overview of that scheme.
In March of 2000, AOL and PurchasePro became partners in an effort to use the Internet to create a business-to-business marketplace. AOL had set up something called a Netbusiness platform and PurchasePro sold software that could be used to do business on that platform.
PurchasePro agreed to pay AOL purchase pro agreed to pay AOL $70 million and gave AOL 100 million warrants. In return, AOL agreed to put PurchasePro on its Netbusiness Web site and to provide Internet advertising and other services to PurchasePro.
As so often happened during the dot-com bubble days, the revenues that AOL and PurchasePro were counting on did not materialize. And instead of confronting that harsh reality, AOL and PurchasePro cooked up a scheme to inflate PurchasePro's revenues.
For example, AOL paid millions of dollars to buy products from PurchasePro that AOL had no use for. AOL also made secret deals with companies to buy products from PurchasePro that were hidden from PurchasePro's auditors. AOL also mislead PurchasePro's auditors by making false statements about its transactions with PurchasePro.
As a result of this scheme, PurchasePro reported at least $10 million in bogus revenue for the fourth quarter of 2000 and announced at least $20 million in false revenue in the first quarter of 2001.
AOL had a very strong motive to create the appearance of high revenues on the part of PurchasePro, because the value of the warrants AOL had received in the deal depended on PurchasePro's performance.
As a result of the scheme, AOL itself had about $20 million in additional revenue in the fourth quarter of 2000 and about $15 million in the first quarter of '01.
Let me turn to the individual guilty pleas that I mentioned. The four defendants who will plead guilty are Robert Geoffrey Layne of Lexington, Kentucky, a co-founder and former executive vice president at PurchasePro who has agreed to plead guilty to securities fraud. Shawn McGhee of Memphis, Tennessee is a former chief operating officer at PurchasePro, who has agreed to plead guilty to conspiracy to commit securities fraud. Dale Boeth of Roanoke, Texas, is a former vice president at PurchasePro, and he has agreed to plead guilty to conspiracy to commit securities fraud.
And last, James Sholef of Las Vegas, Nevada, also a former vice president at PurchasePro, has agreed to plead guilty to perjury.
Those four men have also entered into settlements involving civil enforcement actions, brought against them by the SEC.
Two other former PurchasePro executives have previously pleaded guilty, back in September of 2003, and have already been sentenced. And as I said, this investigation is continuing.
Let me go back now to the deferred prosecution agreement that I mentioned involving AOL and its parent, Time Warner. The agreements we have reached today with America Online and Time Warner give the company a chance to turn itself around and avoid the consequences of a criminal conviction.
One reason we agreed to defer prosecution was to minimize the collateral consequences of an indictment, which would have been borne by innocent employees and investors.
But this deferred prosecution agreement did not come cheap for AOL. We have balanced our concern for innocent parties against the important need to send a strong deterrent message and to protect the rights of victims.
Here are some of the measures that we have insisted on as part of this agreement to defer prosecution if they abide by the agreement over a two-year period.
Both AOL and Time Warner, as I have mentioned, have acknowledged the criminal conduct of their employees and have accepted responsibility for that conduct. As I mentioned earlier, AOL will pay a total of $210 million. That includes $150 million to be paid into a compensation and settlement fund and a $60 million criminal penalty to be paid to the United States Treasury.
AOL is required to cooperate fully in the ongoing investigation of PurchasePro, that transaction and also in connection with a variety of other transaction.
AOL is required further to adopt a wide range of internal controls that are designed to deter future misconduct by its employees and foster the critical corporate culture of respect for the law that we want to see in every company in America.
They also agreed that an independent monitor will be appointed to review AOL's compliance with the agreement and to report back regularly to the Department of Justice.
If AOL fails to comply with the agreement, the deal is off, and they are in a world of trouble, because we can proceed to trial based on the stipulated statement of facts that was filed in Eastern District of Virginia court.
I want to thank and congratulate Assistant Attorney General Chris Wray, United States Attorney Paul McNulty from the Eastern District of Virginia. I, on their behalf, also want to recognize the hard work of the prosecutors who've worked on the case: Adam Reeves, Charles Connolly, Dana Bente (ph) and Kevin DiGregory (ph).
I also want to thank the staff of the SEC for the usual fine work in helping with this investigation.
And lastly I want to commend the outstanding work, again as usual, of the FBI, represented here by Assistant Director Swecker, and note that the bureau's Washington field office continues to play a critical role in this ongoing investigation.
Now I would like to introduce Assistant Director Swecker -- Chris.
WHITFIELD: All right, out of Washington, the Justice Department explaining what they are calling a deferred prosecution involving a settlement of Time Warner, the parent company of CNN, after reaching a $210 million settlement over allegations of fraud at the company's AOL division -- Kyra.
PHILLIPS: We're just going to take a quick break. We'll be right back.
(COMMERCIAL BREAK)
PHILLIPS: Using cell phones during flight, well, the SEC is talking about allowing it.
And we've got to wonder, if you're able to talk a mile a minute on the ground, how do you calculate the speed of speech at cruising altitude? Don't forget to factor in the square root of your seat mate's annoyance, by the way.
Tim Jarrell joins me now from New York to talk about it, talk about the talk, I guess. He's the head of publishing for "Fodor's" travel guide. And he has got a finger on the pulse of the traveling public.
By the way, we're still taking your e-mails on this. So e-mail us.
Good to see you, Tim.
TIM JARRELL, "FODOR'S": Good afternoon, Kyra.
PHILLIPS: All right, so, is there a huge hue and cry to have cell phones on airlines?
JARRELL: Well, I think, if you ask most passengers, that they would say no, don't put cell phones on airplanes. But it will happen. It may take two or three years, but I think that the airlines want it. Business travelers want it. And I also think the telephone and telecommunication companies want it as well. So we're going to see it one way or another.
PHILLIPS: So you definitely think this is going to pass because of the financial aspect? It could mean money for the airlines, money for the companies.
JARRELL: Well, I think the airlines want it because their business travelers are demanding it. I think the communication companies want it because in fact it is a new revenue source and it expands what they're doing to 30,000 feet. And, also, I think that the FCC wants to see this kind of technology in airplanes.
PHILLIPS: It says here the Federal Communications Commission has decided to seek comments now from the public about ending the ban on the in-flight use of cell phones. Is it possible that the public could come out with so many demands not to make this happen that the FCC could say, OK, forget it; it won't happen?
JARRELL: I don't think so.
I think that you are going to see a lot of people in the public say they don't want it, but, in the end, I think that the question is about technology. It's about safety on the airplanes. And no matter how much you and I might not want it personally for other passengers, I think you are going to see this pretty soon.
PHILLIPS: All right, as you can imagine, we're getting tons of e-mails. And I want to read you some of these.
Judi in Minnesota says: "Oh, great, now the same people who annoy us with loud, uncensored cell phone conversations in restaurants can talk nonstop from takeoff to landing. When did we get all so important that we can't be just a phone call away from our family, friends and colleagues?"
Let me ask you this, Tim. What about just a cell phone section on the airplane? Would that work?
JARRELL: It's hard for me to imagine how that would work. It kind of reminds you of the old no-smoking and smoking sections maybe 15, 20 years ago that were on the airplanes.
It's just a little bit difficult for me to imagine how that might happen, but it's possible. Maybe the airlines might come up with that kind of solution. But what about first class? First class in a lot of airplanes is six, eight, 10 seats. It's hard to segregate phones within such a small space.
PHILLIPS: All right, Sandi in Connecticut says: "Can we put the cell phone users on special planes, the ones that have to sit on the runway in the penalty boxes and the ones who have mechanical problems, etcetera? My guess is, if there were additional charges for using a cell phone in the air, there would be less people trying to prove their importance and more people would wait until they landed. If the smokers can wait, then the talkers can wait as well."
Now, we sort of touched on that. Let's talk about the fact that even the phones on the aircrafts now, the airplanes now, you never see people using those because they are so expensive. Could cell phones be cheaper than that?
JARRELL: Well, I think cell phones will be cheaper than that. I think the current price on airplanes phones is now $3.99. They are expensive. Their quality isn't very good. My guess is that the cell phone -- cell phones will certainly be cheaper. How it will be priced, I'm not quite sure. But it will be a lot cheaper. And it may be just part of your basic plan.
PHILLIPS: All right. You also did a survey. "Fodor's" actually did a survey, men vs. women, who breaks the rules most. And it turns out men actually get on the cell phone or leave it on more than women and also are the first ones to turn them on once the plane hits the tarmac.
JARRELL: Well, this may come as no surprise. But it is true we did a survey. And we found out that 5 percent of travelers in general do not turn their cell phones off on airplanes. And, shock of all shocks, men, 2-1, one, are more likely not to turn off their cell phones than women. I'm not going to make a comment.
PHILLIPS: All right.
JARRELL: But that's what the results were.
PHILLIPS: That's what the results said.
Well this, e-mail that we just got in, I want to -- I was saying -- because we were getting all these e-mails of people that don't want them. But this one just came in from Captain Joe Bough (ph), which I think is sort of funny.
He says: "Here's the solution. Have a cell phone section of the plane" -- we mentioned that -- "where airlines charge $10 to $25 extra to sit in that section. This keeps all the loudmouth phonies who continually use the phones herded together to annoy each other and not civil people."
That's an interesting idea, charge a little more.
JARRELL: Charge a surcharge, $25, so that you can strut your ego and have your cell phone. And maybe, you know, there's a decibel price as well, so if you talk in a whisper, the surcharge is $5. But if you bellow and, according to your self-importance, it could be $30, $40. And maybe your fellow passengers should vote.
(LAUGHTER)
PHILLIPS: There you go, get involved with the FCC in how they are asking for comments now.
Tim Jarrell from New York, thank you so much. Continue to read those travel guides from "Fodor's." We all do. But it's interesting input today. Thanks, Tim.
JARRELL: Thank you, Kyra.
PHILLIPS: OK -- Fred.
WHITFIELD: Well, cell phone or not, are you a high roller? A first-of-its-kind public offering in Vegas. Details straight ahead on LIVE FROM.
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