Full opinion text
VERDICT AND OPINION WALTER D. KELLEY, JR., District Judge. By Indictment returned on January 10, 2005, a Grand Jury sitting in the Eastern District of Virginia charged defendant Charles E. Johnson, Jr. a/k/a Junior Johnson (“Junior”) with conspiracy to commit securities fraud, securities fraud and witness tampering. Junior’s first trial ended abruptly after the Court granted his defense counsel leave to withdraw for ethical reasons. The United States subsequently filed an additional Criminal Information, charging Junior with attempting to obstruct an official proceeding — his first trial — by giving his counsel an altered e-mail to use as evidence. Junior waived a jury, consented to consolidation of the Indictment and Criminal Information, and the matter was tried to the Court. After considering the evidence introduced during twelve days of testimony (including over 250 exhibits and numerous stipulations that attach transcripts from other proceedings) and carefully weighing the arguments of counsel, the Court FINDS Junior GUILTY of all charges against him. Pursuant to Fed.R.Crim.P. 23(c), the Court states below its specific findings of fact and addresses defense motions to dismiss the Indictment as a matter of law. I. FINDINGS OF FACT A. History of Purchase Pro Junior Johnson is the principal founder and former Chief Executive Officer of PurchasePro.com, Inc. (“PurchasePro” or the “Company”), a now-defunct internet company that specialized in business-to-business commerce (“B2B”). PurchasePro established and promoted virtual “marketplaces” in which buyers and sellers of goods could interact with one another. For example, Hilton Hotels- — -which was one of PurchasePro’s largest clients— could use its marketplace to receive bids for towels, sheets and other goods used in running its hotels. Suppliers who did not previously have a relationship with Hilton could use the marketplace to become part of the hotel chain’s supplier list. As originally conceived, such a B2B model allows sellers to find new customers and enables buyers to pay lower prices due to increased competition. PurchasePro originally sold software to its customers and then charged them a monthly fee for access to PurchasePro’s global marketplace. This was called a “subscription” model. In the summer of 2000, PurchasePro changed its business model to the sale of a one-time “marketplace license.” The license model allowed users to create their own proprietary marketplaces using PurchasePro software as the engine. Licensees would also have access to PurchasePro’s global marketplace. The licenses varied in price depending on the number of users that the buyer wished to grant access to its marketplace. In addition to a one-time license fee, PurchasePro charged its customers hosting and maintenance fees for administering their marketplaces on its computer network. Junior and his co-founders started Pur-chasePro in 1996 with loans and investments from a group of individuals who lived in Junior’s home state of Kentucky. After a couple of rocky years, and a second private placement, the Kentucky investors’ faith in Junior was rewarded when Pur-chasePro successfully completed an initial public offering in September 1999. The IPO raised $48 million. PurchasePro’s stock thereafter soared, and the Company raised another $250 million in a follow-on offering completed in February 2000. Although a number of PurchasePro’s investors used the soaring stock price and various offerings to reap millions of dollars in gains, Junior did not sell a single share of his stock. In fact, he purchased an additional $5 million worth of PurehasePro shares as part of the second stock offering. Junior ended up owning 26-27% of the Company. Junior viewed his decision to retain Pur-chasePro shares as a public statement of faith in the future of the Company. In one of his many appearances on the CNBC business network, Junior announced that neither he nor any member of his executive team would sell a share of Purchase-Pro stock until the Company was profitable. Only one of the Company’s Vice-Presidents violated this pledge, and Junior ostracized him from PurchasePro’s day-today affairs. However, the executives’ pledge not to sell their PurehasePro stock was not a pledge to live the impecunious lives of struggling entrepreneurs. As the price of PurehasePro stock soared in 1999 and 2000, Junior and other members of management monetized their stock holdings by pledging them as security for loans. In connection with PurchasePro’s secondary stock offering, Junior obtained a line of credit from Prudential Securities (the lead underwriter) in the amount of $50 million. He subsequently refinanced this loan with a line of credit from Zurich-based Credit Suisse in the maximum amount of- $100 million (although he never actually borrowed this much). Other PurehasePro executives pledged their shares to banks as collateral for loans. For example, Executive Vice-President Geoff Layne pledged his shares to Bank One as collateral for a $3.2 million loan. Although the $100 million to which Junior had access through Credit Suisse is an immense sum in absolute terms, neither party foresaw any difficulty of repayment. On March 17, 2000, when PurchasePro’s stock closed at its yearly high of $75,875, Junior’s holdings in the Company were worth over $1 billion. In addition, Credit Suisse imposed a high loan-to-value ratio. As a result, the value of Junior’s stock would always have to be at least four times his loan balance. The loan agreement gave Credit Suisse the discretion to sell Junior’s shares as necessary to maintain the loan to value ratio. At the end of 2000, both PurehasePro and Junior appeared to be in great shape. PurehasePro had 542 employees, $86 million of cash in the bank and had just completed the fourth quarter with revenue far higher than analysts’ consensus predictions and its first net profit. (GX-1.1). PurchasePro’s stock finished the year at $17.50 per share. (DX-7000). While the stock price was down considerably from its high for the year, the Company still had a market capitalization of almost $1 billion. Junior’s shares were worth over $236 million. However, not all was at it appeared. Behind the curtain, customers seemed unwilling to pay substantial sums for a marketplace license until the concept became more heavily adopted by other businesses. In other words, PurehasePro faced a collective action problem. As a result, Pur-ehasePro had to resort to reciprocal deals to generate much of the revenue booked in the fourth quarter. Known within the company as “Barney deals,” these transactions required PurchasePro to buy products and/or services from its customers in an amount equal to or greater than the price of the marketplace license. In essence, the companies were simply trading dollars. Businesses ordinarily have no incentive to do this because it does not result in any increase in net profit. However, gross revenue, not net profit, was the metric favored by Wall Street during the internet boom. Securities analysts began questioning the “quality” of PurchasePro’s revenue. Even more importantly, the company’s auditor, Arthur Andersen & Co., had concluded that revenue from Barney deals could not be recognized at the time the marketplace license was sold. Recognition of sales revenue generated by Barney deals had to be deferred until PurchasePro performed its reciprocal obligation. To enforce this accounting decree, Arthur Andersen required PurchasePro executives to certify in writing that each marketplace license sale did not involve a reciprocal arrangement. As it headed into the first quarter of 2001, PurchasePro had to change the way it made sales. The company counted on its relationship with America Online, Inc. (“AOL”) to help it make this transition. B. PurchasePro’s Relationship with AOL During the internet boom of the late 1990’s and 2000, AOL was the pre-eminent company in cyberspace. Tens of millions of consumers accessed the internet through AOL, and the Company was just as dominant as an advertising medium. Numerous start-up companies sought a business relationship with AOL as a means of gaining credibility in the market. Junior was one of those who sought to tie his Company’s fortunes to the tail of the AOL comet. His timing was propitious. In late 1999, when he began negotiations with AOL, the internet giant was planning to introduce a small business website through its Netscape subsidiary. Numerous companies wanted to be part of this “NetBusiness” site because they envisioned it as a portal through which many new customers would gush. These small businesses would want access to B2B resources. AOL selected PurchasePro to provide this service. AOL and PurchasePro ultimately agreed to co-develop a new generation of Pur-chasePro’s marketplace technology, and to co-develop and market a co-branded marketplace. This relationship had three major contractual components: ^Technology Agreement dated March 15, 2000. AOL and PurchasePro agreed that each would contribute technology to the development alliance and co-manage the development of the new marketplace technology. PurchasePro further agreed to pay AOL $20 million in eight quarterly installments ($2.5 million each) beginning August 1, 2001. AOL was not obligated to contribute any money, but it promised to contribute programmers to the development alliance. *Interactive Marketing Agreement dated March 15, 2000. AOL and Pur-chasePro agreed to market the co-branded marketplace across AOL’s various properties through advertising “impressions.” Advertising on AOL’s websites was also known as “carriage.” PurchasePro purchased millions of impressions in exchange for a $25 million immediate payment and seven quarterly payments of $3.57 million each ($50 million total). *Warrant Agreement dated March 15, 2000. This contract gave AOL warrants to purchase four million PurehasePro shares at the then-market price of $63 per share. One million of the warrants vested immediately. The remaining three million warrants vested as AOL referred certain amounts of revenue to PurehasePro. The unvested warrants would automatically reprice themselves to PurchasePro’s trading price in March 2001. To summarize, PurehasePro agreed to pay AOL $70 million over a two-year period. It further agreed to sell to AOL one million shares initially and another three million shares later if AOL referred a large number of marketplace customers. In return, AOL agreed to allow electronic ads to appear on its network (at a marginal cost of virtually $0) and to contribute unspecified programmers and technology to a marketplace joint venture. These unequal terms reflected the dominance of AOL’s bargaining position, its stock market value as a publicly announced partner and the vast number of new customers that undoubtedly would flow through the NetBusiness portal. NetBusiness got off to a very slow start. Its launch was delayed and not well promoted. As a result, AOL’s partners — including PurehasePro — did not capture the torrent of new customers that they had expected. To salvage its relationship with PurehasePro, AOL agreed in the fall of 2000 to become a customer of PurehasePro and a reseller of its products. Three new contacts reflect the changes in the relationship. *Bulk Subscription Sales Agreement dated December 1, 2000. AOL agreed to purchase 100,000 subscriptions to Pur-chasePro marketplaces for free distribution to AOL’s customers. The cost to AOL was $4.9 million per month. Pursuant to this arrangement, PurehasePro booked millions in bulk subscription revenue for the fourth quarter of 2000. * Advertising Services Agreement dated December 1, 2000. AOL agreed to act as PurchasePro’s agent in selling marketplace licenses. It would receive as a commission 50% of the revenue generated from its sales effort, plus additional warrants to buy PurchasePro’s stock at a discounted price. ^Amended Warrant Agreement dated November 18, 2000. The prior Warrant Agreement was amended to further incen-tivize AOL to send customers to Purchase-Pro. For each dollar of revenue that AOL referred to PurehasePro (including agency sales), AOL would receive three dollars in warrants. In addition, the exercise price of the warrants was reduced to $0.01 per share. (GX-29.1). Under this new relationship, Purchase-Pro was paying dearly to incentivize AOL to sell its marketplace licenses. Not only would AOL receive 50% of PurchasePro’s licensing fee, but it would also get triple the gross amount of the sale in stock warrants. Using a warrant valuation model known as Blaek-Scholes, this arrangement allowed AOL to book immediately as profit the value of the warrants it earned. In the fourth quarter of 2000, AOL received $30 million in PurehasePro warrants. (Tr. 1583-84). C. The First Quarter of2001 The sisyphean task of figuring out how to “make” the next quarter customarily fell to Jeff Anderson, PurchasePro’s Senior Vice President of Sales and Strategic Development. In planning for the first quarter of 2001, Mr. Anderson established an initial revenue goal of $50 million. Of this total, he looked to AOL for $18.9 million. (GX-610). The anticipated AOL revenue fell into three categories: AOL sales of marketplace licenses pursuant to the Advertising Services Agreement ($10 million); AOL’s purchase of bulk subscriptions pursuant to the Bulk Subscription Sales Agreement ($4.9 million); and revenue generated in connection with a three-way transaction involving AOL, PurchasePro and AuctionNet ($4 million). As we will see, PurchasePro’s dependence on AOL-related revenue continually increased as the quarter played out. 1. Sale of Marketplace Licenses The AOL sales effort started slowly. AOL did not sell any marketplace licenses in January 2001. Nonetheless, Purchase-Pro remained so confident of AOL’s future success that it issued optimistic guidance to the investing public. During a February 12 conference call to announce fourth quarter earnings, Junior predicted that PurchasePro would earn first quarter revenues of $42 million, a 25% increase over the prior quarter. (GX-3). Two days later, on February 14, Jeff Anderson circulated a revised Ql revenue breakdown that increased the AOL sales target to $14 million from $10 million. (GX-610). Wall Street did not share Junior’s optimism about PurchasePro’s future. On February 5, Barron’s magazine published an article entitled “Worth the Price? With a modest business, PurchasePro has built a large market value.” Among other things, the article criticized PurchasePro’s “liberal accounting procedures” and inexperienced management. Three days later, Prudential Securities — the investment firm that took PurchasePro public — downgraded its prior recommendation of Purchase-Pro stock. The stock price slid from $28,875 on February 1 to $11,313 on February 29. As of March 1, AOL still had not sold any marketplace licenses. This was a major problem for PurchasePro because, as Jeff Anderson succinctly noted in a late February e-mail, “Bottom line is that we are dead without AOL in Ql and Q2.” (GX-611). However, AOL’s principal salesperson, Neil Davis, assured Junior that he was “pretty comfortable” with getting $50 million in sales by the close of the quarter. (GX-457, DX-1903). Davis’s assurances led Junior to authorize a press release on March 7, 2001 that reiterated PurchasePro’s prior guidance of $42 million in gross revenue for Ql. (GX-4). Neil Davis’s confidence was based in large part on AOL’s willingness to offer carrots and wield sticks to make the sales. AOL pressured its existing suppliers to buy a marketplace license as the implied price of continuing to do business with the internet giant. Other prospective customers were enticed with the prospect of becoming an AOL supplier. Companies who still balked were guaranteed a return on the their investment through side agreements whereby AOL would buy more goods and services from the company than the price of the license. (D-457). Finally, AOL was willing to rework its advertising contracts with existing customers to “make up” the money the customers spent with PurchasePro. AOL would either cut the amount it was owed or would agree to deliver additional advertising impressions at no cost. In authorizing the March 7 press release, Junior overrode objections from many members of management who were not so sanguine about AOL’s ability to deliver. While Junior had Neil Davis’s prediction to back him up, he also was under pressure to do something very public. On Tuesday, March 6, PurchasePro’s stock price finally sank to a level that caused Credit Suisse to begin selling some of the shares that Junior had pledged as collateral. Over a two-day period (March 6 and 7), Credit Suisse sold 1.45 million PurchasePro shares, driving the stock down to $10.25. The day after the March 7 press release, the stock rose as high as $12,375 per share. The analysts were “uniformly enthusiastic” about Purchase-Pro’s announcement because all of its competitors were lowering guidance and laying off personnel. (Tr. 50). The bounce was short lived. By March 15, PurchasePro’s stock had sunk to $9.21. In addition, AOL still had not sold any marketplace licenses. Highly concerned about the situation, Junior decamped from Las Vegas to AOL’s offices in New York City. He was accompanied by James Sho-leff, a PurchasePro Vice-President whose principal job was to serve as Junior’s aide-de-camp. As recounted by Sholeff, the purpose of the trip was to “redneck” AOL into closing the sales of marketplace licenses. Junior believed that AOL’s sales force lacked focus, which he would supply through bully and bluster. PurchasePro’s stock continued to slide during Junior’s and Sholeff s first full week in New York (March 19 to 23), closing at $6,594 on Friday, March 23. Although he was in New York to close the sale of marketplace licenses, PurchasePro’s falling stock price caused Junior to spend valuable time trying to avert further sales of his stock. In an e-mail sent to Credit Suisse on March 19, he implored the Swiss bank to “[pjlease give us a reasonable solution that insures [sic] the bank is secure and at the same time is a plausible solution that won’t cause the stock to crater.” (GX-52). Junior represented that PurchasePro’s Board of Directors was willing to do “whatever is reasonable” to prevent further sales. (Id.) Two days later, on Wednesday, March 21, the Board agreed to loan Junior the money necessary to exercise his vested stock options and deliver the shares to Credit Suisse as additional collateral. Since the loaned money went back to PurchasePro immediately to purchase the option shares, it was a cashless transaction. (Tr. 1270). The stock slide affected not only Junior, but also most of the executives at Pur-chasePro. Like Junior, they had borrowed heavily against their shares. Particularly hard hit were Mr. Sholeff and PurchasePro’s Executive Vice-President, Goeff Layne. An e-mail that Layne authored to a Mend on March 20 reveals the desperation that he felt towards the end of the first quarter of 2001. I lost another Mcking million today and i don’t know when it will stop, this bitch has run me into the ground royce. i would have never predicted this shit in a million years, why me bro? what did i do to deserve this? if i can leave this bitch with my debt payed off and $5mm in my pocket, i’d move to fargo, north dakota if need be, my brain is so scattered right now, i don’t know what is coming or going, i will know in 12 days though. (DX-361) (emphasis in original). Sholeff lamented that he “would end up being a shepherd like my grandfather.” (DX-503). His financial situation became so desperate by Friday, March 23 that Junior had to transfer $250,000 and thousands of his own PurchasePro shares to Sholeff s account to meet a margin call. (DX-526; Tr. 654). PurchasePro’s declining stock price created enormous pressure to meet Junior’s public prediction of a record quarter. In his trial testimony, PurchasePro’s President, Shawn McGhee, described the atmosphere at the Company during the last two weeks of March. Q: [S]ay you came in 3.7, 4 million dollars short of guidance, that wouldn’t have been the end of the world would it? A: Oh, yes, at that point it would have been the end of the world. I think it would have been received as negatively as if we did 29. Any miss was a miss. Q: Was it your perception that, as you put it, any miss was going to be catastrophic? A: Yes, We had gone out and reiterated, Junior specifically had reiterated guidance numerous times. The Street had challenged that reiteration. What they were saying was Rome is burning, why are you the only people who aren’t? And, you know, that had been supported in numerous ways. And, you know, we had a short interest in The Street that was very vocal. Q: What was the atmosphere around PurchasePro that last week of March? You’ve described this kind of overhang. What was the attitude among the senior vice-presidents? A: It was pretty dire. I mean, one of the reasons why the board moved so quickly as they did with the retention bonuses was that they were worried about a mass walk-out. Q: Was that a realistic worry? A: You had three or four guys that were key to the organization. Jeff Anderson comes to mind as one who was very vocal. Boeth was in a similar situation. Those two in particular were there. The stock was gone. They had left, you know, mid six-figure jobs to come to work for PurchasePro basically for the stock. And the stock has no value now. And these guys had worked, you know, in some cases months, in some cases years, with little or no salary, paying expenses out of their own pockets to try and make this company work. And there was nothing left. I mean, you get down to if the stock’s down and you don’t believe it’s going to come back up, then, you know, I’ve got to feed the kids at some point. Q: Just like commodities, you have to cut your loss at some point? A: Yeah. I would say, you know, you had Geoff Layne who hit margin call with one of his bank loans and was on the verge of losing his house. Scott Miller was on the verge of losing his house. Junior’s, you know, getting clobbered every direction there was. It was pretty dire. Q: So is it fair to say there was a lot of pressure to make guidance? A: Unbelievable amounts. (Tr. 1345-46). In Jim Sholeff s view, “the tension just kept getting higher as the quarter drew to a close.” (Tr. 574). During their stay in New York, Junior and Sholeff set up operations in a conference room near the office of Kent Wake-ford. Mr. Wakeford was a middle level manager in AOL’s Business Affairs group who reported to Eric Keller, a Business Affairs Vice-President. Mr. Wakeford was tasked with the unenviable assignment of managing Junior and closing the sale of marketplace licenses. Despite the rednecking that Junior was inflicting on AOL’s sales force, few deals were being closed. On the Saturday after his first full week in New York (March 24), Junior sent Myer Berlow, AOL’s President of Sales, an e-mail that emphasized Pur-chasePro’s vulnerable position: I believe we resolved a way for the near term and Q1 with the carriage being offered dollar for dollar — going forward with Q2 the meetings are being scheduled where the real value can be presented properly to create a long term value proposition the exact way the ppro sales force currently does allow for both upfront fees and to be able to generate the long term recurring revenue streams — as the populas is built out all sorts of other fee opportunities will then kick in' — hope we can chat before Monday — We are really hostage at this point to AOL for Q1 and will do whatever it takes — we need approx 20-25 to get us both to where we need to be for Q1 — the pipeline is good but it is gametime and deals have to be finished!! (GX-751) (emphasis added). Junior reiterated his anxiety about the situation in an e-mail sent four days later (Wednesday, March 28) to Kent Wakeford. He stated: Tell me what ppro and myself can do to get thos ima deals converted — is neil still getting 5-6 completed as he stated yesterday and how can we expedite paperwork and money — i am on extended set of calls but will start as early as you like tomorrow to make this happen— FREE MARKETPLACE plus addtl carriage should not be that difficult— need names and numbers and either neil, keller or myer — it would devastate this entire initiative w/o getting this quarter completed (GX-621) (emphasis added). That same day, Junior sent a similar e-mail to Eric Keller. Jeff [Anderson] is getting them to Kent that details every line item and we have slashed it to the bone. I know we will get there by doing whatever it takes. At least next quarter we will be in a poaition [sic] to rock!! Eric, we have bent over backwards and spent 10’s of millions without hesitation and your help here not only will be appreciated we will spend accordingly to insure the relationship is kept on a level field. We need to start Q2 immediately after we finish to lay out the needs to prevent either of us being in this position again. You and I both know that this relationship will deliver big in future quarters, however we have to survive Ql. Anderson and Kent are laying out the numbers and I will be there early to get on calls with you, Neil and Kent to get it done. The numbers we are giving you barely gets us there with nothing to spare. (GX-752) (emphasis added). By this point in time, the amount of sales that Purchase-Pro expected from AOL had risen to $30 million. (GX-620). Anything less than that amount might cause PurchasePro to miss its quarter. The sense of urgency that permeates Junior’s March 28 e-mails to Kent Wake-ford and Eric Keller undoubtedly was exacerbated by the continuing fall in Pur-chasePro’s stock price. The stock closed that day at $6.75, a 77% drop since from its year-to-date high in January. The value of Junior’s PurchasePro stock holdings had declined from $395.5 million to $81.3 million over this period of time — a reduction in his net worth of over $314 million. On Friday, March 30, the day before the end of Ql, the parties assessed the results of AOL’s sales efforts. As recounted in an e-mail sent by Jeff Anderson, the parties had closed $9,667 million of marketplace sales and expected to close another $4.22 million by midnight the next day. (GX-632). This total of $13.89 million left Pur-chasePro well short of the $30 million it thought would be needed to meet the guidance it had given to Wall Street. Anderson identified five prospective customers who might generate as much as another $15 million in sales. However, time was running out. Rather than giving up, Junior redoubled his already manic efforts to find more deals. One of the companies he reached out to was Office Depot. It had been an early investor in PurchasePro and currently held warrants to buy additional shares of PurchasePro stock at a substantial profit. Office Depot also had an AOL advertising agreement that was not generating anywhere near the sales that it anticipated. It needed help on both fronts, an angle that Junior sought to exploit. At 5:00 pm on Friday afternoon, Junior sent the following e-mail to Bruce Nelson, the CEO of Office Depot: I just left a message and I need to speak with you asap — Bruce, there is 5 years of my life and the company at risk, please call me at 212-xxx-xxxx or 702-xxx-xxxx-It is urgent (GX-213) (emphasis added). The two men talked that evening. According to Mr. Nelson, Junior offered to amend Office Depot’s warrant agreement to allow for an immediate cashless exercise and offered to persuade AOL to forgive Office Depot’s advertising payment obligations if Office Depot would buy bulk subscriptions from PurchasePro. The offer was worth 2 to 3 cents a share in Office Depot’s earnings. Mr. Nelson nevertheless rejected the deal because Junior insisted that the paperwork be backdated two weeks to reflect a closing in Ql. (Tr. 351, 364). Mr. Nelson testified that Junior sounded “panicked” and “highly concerned.” (Tr. 351). Junior told Nelson “on the call that he’d sold his soul and needed [Nelson’s] help.” (Id.) Mr. Nelson further testified that when he rejected the proposed deal, Junior said he hopéd Nelson never needed a friend like himself. Mr. Nelson replied that he (Nelson) hoped he never needed a friend like Junior. (Id.) The stock market had closed for the week by the time Junior spoke with Mr. Nelson, and the results did nothing to sooth his anxiety. PurchasePro stock fell at one point on Friday, March 30 to a low of $6,125, although it rallied a little bit by the end of the day. The following day, Saturday, March 31, was the last day of the quarter. Several more deals closed that day, including the sale of a marketplace license to a company named Bigstep. Bigstep was an unhappy NetBusiness partner that Junior assigned to Geoff Layne. (Tr. 943-44). After much cajoling, Layne finally got Bigstep to sign a contract to buy a marketplace license for $1.1 million, but the price to PurchasePro and AOL was steep. AOL agreed to rework Bigstep’s adverting contract to reduce by $1.4 million its future payment obligations. Despite the supposed ban on Barney deals, PurchasePro agreed to buy $1.4 million of goods and services from Bigstep and give it $1 million in banner ads. (Tr. 956). Layne testified that Junior authorized the reciprocal purchase, but cautioned that it not be put in writing lest the auditors discover it and refuse to recognize the Bigstep revenue in Ql. (Tr. 948-49). However, Bigstep insisted on a written commitment. To get the deal done, Layne countersigned a Letter of Intent, but post-dated it to April 19, 2001 so the two transactions would appear unrelated. (GX-265; Tr. 956-57). Junior expressly approved post-dating the letter and directed Layne to keep it a secret. (Tr. 958). When the deal was viewed as a whole, Bigstep netted out ahead by $1.3 million. Yellowbrix, Inc. of Alexandria, Virginia was another unhappy NetBusiness partner that Junior assigned to Layne. (Tr. 943-44). By the end of Ql, Yellowbrix owed AOL $900,000 for advertising. Yellowbrix did not want a marketplace license, but agreed to buy one for $440,000 if AOL excused it from any further obligations and PurchasePro bought $390,000 of Yel-lowbrix’s good and services. A deal was struck on these terms, although Purchase-Pro’s buying obligation was deferred until well into the second quarter so that the auditors would not connect the two deals. The parties signed a marketplace license before the end of the first quarter, but once again PurchasePro and AOL had bought a sale. Yellowbrix ended up agreeing to spend $50,000 in out-of-pocket cash to satisfy a $900,000 debt. Layne testified that Junior expressly approved the arrangement. (Tr. 948). . PurchasePro and AOL were still negotiating marketplace sales to several other potential customers, including 1-800-Flow-ers.com and Monster.com, when the quarter ended at midnight on Saturday, March 31. AOL had not brought in enough sales for PurchasePro to make its quarter. This sad state of affairs led Junior to send the following e-mail to Kent Wakeford. Kent, I have pd or enabled AOL to recognize 120 + million dollars and dedicated myself and Jeff Anderson 100% to AOL in Ql and now the rules are changing and I am left holding the bag — so far this has been a one-sided relationship and now PPRO will be crushed and it will personally cause my world to collapse and my family — I bet on AOL to deliver and because nobody had urgency except for the 11th hour PPRO and my world will hurt while AOL has collected a fortune from us and been give [sic] “everything” that I have and yet here I am on the eve of my life being decimated Bottom line is that if we miss everything ultimately will hit the fan because of the significance of warrants, dollars, and the awareness by the analysts and media. There is also a huge commitment to the companies purchasing these and my commitment to make it work that will be in jeopardy when I am not there. Lastly, but probably the most important item is the future economic opportunity lost to everyone. I pray that this can be resolved because I do enjoy the relationship and that is why I sold my soul. Jr (DX305) (emphasis added). Even though PurchasePro had not generated anything close to $42 million in revenue by the close of business on March 31, Junior told Sho-leff, “if anybody asks you make sure you tell them we made the quarter.” (Tr. 600). Despite venting to Kent Wakeford, Junior remained unwilling to concede defeat. Several hours before midnight on Saturday, March, 31, Junior sent an e-mail to AOL’s President of Sales, Myer Berlow. Junior proposed in the e-mail to continue selling Q1 deals during the first week of Q2. Myer, Now I can’t sleep until my Q is done — I have banked my future on you big guy!! I trust you and would have waited to pay these commissions if it wasn’t for my trust in you. The task can be done probably only by you and below is the task. We need flowers, monster and 1.5 more deals and I need paperwork for the quarter sent no later than Wednesday to receive on Thursday — PPRO and my entire financial future does depend on this, in other words I will be wiped out otherwise. Thanks Jr Acutal Numbers 7.4 with monster and flwrs 5.55 gap to fill 12.95 total (GX-760.1) (emphasis added). Monday, April 2 was the first business day of the next quarter, and it inaugurated a disastrous week for PurchasePro’s stock. Credit Suisse began selling more shares of the pledged PurchasePro stock that Junior had pledged as collateral. Junior requested that PurchasePro’s Board authorize an emergency loan to him so that he could pay it over to Credit Suisse and stop the sales. The Board of Directors considered this request in a special meeting held on Tuesday, April 3, but it reached no decision. The Board met again on Friday, April 6, but once again deferred acting on Junior’s loan request. According to minutes of the April 6 meeting, “The Board concluded that without more definitive information concerning the Company’s first quarter financial results and certain other matters, it presently was not in a position to make a decision on whether it could assist Junior.” (GX-35). By week’s end, Credit Suisse had sold 2.3 million shares of PurchasePro stock, and its price sank to a record low of $2.93 per share. The value of Junior’s stake in PurchasePro shrank over the course of the week by another $54 million (to $32.9 million). The sorry state of the Company’s credibility on Wall Street was reflected in an e-mail that Junior received on Wednesday, April 4 from a stock analyst at Lehman Brothers: Jr, I’d be grateful if you could give me a call when you have a few minutes. I would like to hear from you that there will be no more deals involving non-monetary assets or liabilities, no more warrants deals, no more revenue from companies you have an investment in. If it means you have to miss my projections or bring down guidance-that’s fine with me. At $3, its clear no one believes the projections anyways. We need to clean this story up so that people can judge it on the fundamentals. Patrick Walravens Vice President B2B Equity Research Analyst Lehman Brothers (DX-410). Despite these distractions, Junior continued to “redneck” Kent Wakeford and others to close the sale of marketplace licenses during the week of April 2. The sale to 1-800-Flowers.com referenced in Junior’s March 31 e-mail to Myer Berlow fell through when that company tried to recut the deal to exploit PurchasePro’s vulnerability. The parties did manage to sell a $3.7 million marketplace license to Monster.com on Wednesday, April 4, but had to turn it into a Barney deal in order to close the transaction. PurchasePro assigned to Monster $6.2 million of the advertising impressions that it previously had purchased from AOL pursuant to the Interactive Marketing Agreement. When the two obligations were netted against each other, Monster came out ahead by over $3 million. The Monster marketplace license was dated March 31, 2001, even though it was not signed until April 4. During the first week of April, Junior admitted to Ed Kim that he was still selling Q1 deals. (Tr. 61). Similarly, Junior told Jeff Anderson that AOL had committed to deliver Q1 contracts to PurchasePro during the first week of April. (Tr. 408). On a conference call with several Pur-chasePro executives, including Mr. Kim, “[Junior] told us not to worry, that the quarter ends when I say it ends, not when the calendar says it ends.” (Tr. 64). 2. Bulk Subscriptions As discussed above, AOL had purchased 100,000 one-month subscriptions to Pur-chasePro’s Global Marketplace for the month of December 2000 at a cost of $49 per subscriber. ($4.9 million total). AOL distributed the subscriptions to its NetBu-siness customers as a way of promoting the B2B platform that it and PurchasePro were developing jointly. The purchase was documented in the Bulk Subscription Sales Agreement. The Bulk Subscription Sales Agreement gave AOL the option of purchasing bulk subscriptions for additional months on the same terms and conditions. To exercise this option, AOL had to notify Purchase-Pro no later than five days after the beginning of the month. AOL gave verbal notification for the months of January and February, 2001, thereby ordering $9.8 million of additional subscriptions that Pur-chasePro dutifully made available to AOL’s customers. However, because the Bulk Subscription Sales Agreement technically had expired, AOL and PurchasePro had to execute a written contract Amendment to make AOL’s exercise a binding obligation. AOL dragged its feet on signing an Amendment to the Bulk Subscription Sales Agreement. In an e-mail to Kent Wake-ford dated March 15, 2001, Jeff Anderson reminded Mr. Wakeford that PurchasePro still had not been paid $4.9 million for the subscriptions AOL distributed in December. He also stated, “Need you to execute the Q1 prepaid subscription agreements — including the renewal option from the Q4 contract ($4.9M) and the addendum that Wiegand sent you two weeks ago (an additional $4.9M) — we’ll need payment on the full $9.8M by 3/30 as we manage our cash position” (GX-1410). By the end of the last week of March, AOL still had not executed the Amendment, and Junior was becoming frantic about the situation. He and other senior PurchasePro executives knew that Arthur Andersen would not recognize the bulk subscription revenue in Ql unless there was an Amendment signed before the end of the quarter. The $9.8 million that AOL verbally had agreed to pay was approximately 25% of PurchasePro’s projected revenue and losing it would cause Pur-chasePro to fall well short of the revenue guidance it had given to Wall Street. However, AOL was concerned about its own quarter. While AOL was at this time a huge company with over $40 billion in annual revenue, its executives were worried about the reduction in gross income that necessarily would follow from paying (or obligating itself to pay) $9.8 million to PurchasePro in Ql. PurchasePro was not the only company that needed to meet or beat Wall Street expectations. As part of the complicated, symbiotic relationship between AOL and Purchase-Pro, Junior had promised Myer Berlow that PurchasePro would deliver, before the end of the first quarter, a check for the commissions that AOL had earned on marketplace sales during the quarter. AOL was counting on this revenue to make its own projections. In happier times, the parties had estimated the commission amount to be $12.2 million (which assumed AOL would generate sales of $24.4 million). On the afternoon of Saturday, March 31, Junior decided to use this promised commission payment as leverage to extract a signed Amendment to the Bulk Sales Agreement. After waiting all day for Eric Keller to fax back a signed Amendment, Junior took back a $12.2 million check he previously had given to Kent Wakeford and announced that he would keep it until he received the signed Amendment. He then left AOL’s offices and went incommunicado. This enraged Myer Berlow who was counting on receiving the $12.2 million by the end of Ql. Mr. Berlow was in Mexico on vacation. He directed that Kent Wakeford, who was on the ground in New York, send Junior the following email message. myer says he’s knee deep in blood and you’re pissing on his head — myer’s been on the phone screaming at people on your behalf, he’s flying in tomorrow and coming straight to your hotel — as he says, you better tell him your hotel room or he will knock on fucking every door. (GX-651). After receiving this message, Junior forwarded it to certain PurchasePro executives (including Sholeff, Layne and Anderson) with the caption “The game of chicken proceeds.” (Id.) Several hours later, Junior asked Eric Keller by e-mail, “Where is my signed document — I will keep this check ... till my signed copy is faxed prior to midnight!” (GX-760). Junior finally relented and gave the $12.2 million check back to Kent Wakeford late Saturday evening. He told Jim Sho-leff that he gave the check to Kent Wake-ford to “get AOL pregnant” and thereby obligate it to continue selling Q1 deals after the end of the quarter. (Tr. 585-86). The plan was further revealed in a subsequent e-mail to Myer Berlow. Junior stated: Myer, Now I can’t sleep until my Q is done — I have banked my future on you big guy!! I trust you and would have waited to pay these commissions if it wasn’t for my trust in you. The task can be done probably only by you and below is the task. (GX-760) (emphasis added). Junior went on to outline the plan for post-Ql sales that is discussed above. Nothing more happened on the bulk subscriptions issue until Thursday, April 5. Jim Sholeff was sitting in an AOL conference room that day when Eric Keller came in and dropped off a blue file folder that contained two letters. The first letter was appended to an Amendment to the Bulk Subscription Sales Agreement. The Amendment was dated March 31, 2001 and signed by Mr. Keller. However, the letter itself stated: April 5, 2001 Dear Jim: I am enclosing a copy of the Amendment, which we have signed today. It is our understanding that the Promotional Subscriptions, which are the subject of this Amendment, have been active in January, February and March. Sincerely, /a/ Eric L. Keller (GX-558) (emphasis added). Sholeff gave the letter to Junior, who remarked upon reading it, “Nice try, Eric.” (Tr. 619, 621). The second letter from Mr. Keller addressed the $12.2 million commission check. It stated: April 5, 2001 Dear Jim: We are in receipt of your commission check for $12,200,000. We have received referral letters with respect to $6,700,000 of commissions earned. You have assured us that we have earned a total of $12,200,000 in commissions and paid us accordingly. We look forward to receiving the documentation confirming the additional marketplace sales on which AOL has earned the remaining commissions as soon as possible. Sincerely, /s/ Eric L. Keller (GX-861). Sholeff put both letters in his briefcase and left AOL’s offices. Upon getting in the limousine for a ride to the hotel, he remarked to Junior’s girlfriend, “I don’t want to know how many SEC regulations I broke today.” (Ex. F to Oct. 24, 2007 Stipulation). She described Sho-leff as despondent. 3. AuctionNet Statement of Work In December 2000, AOL and Purchase-Pro negotiated a partnering arrangement with a company called AuctionNet. The success of eBay had alerted the internet community to the power of auctions as a method of doing business. AOL wanted an auction function for its NetBusiness site and PurchasePro wanted to be able to offer auctions on its global marketplace. Rather than develop the technology themselves, AOL and PurchasePro turned to a company named AuctionNet. The parties entered into a three-way deal that is described below. Not surprisingly, Barney the purple dinosaur was integral to the arrangement. In December 2000, AuctionNet purchased two PurchasePro marketplace licenses and related services that it did not want for $3.2 million. This was the price of doing business with AOL, but it was a price AuctionNet was willing to pay in order to gain credibility in the marketplace. That same month, PurchasePro agreed to pay AuctionNet $5 million for a license to use its technology on Purchase-Pro’s global marketplace and related fees. AuctionNet used the $5 million to fund an arrangement with AOL whereby it purchased a position as the preferred provider of auction services on AOL’s NetBusiness site. AuctionNet made a $1 million payment initially to AOL and agreed to pay the remaining $4 million over time. Finally, on January 18, 2001, AOL amended the existing Advertising Services Agreement with PurchasePro to allocate to Purchase-Pro the $4 million in future payments that it was to receive from AuctionNet. (GX-2303). The $4 million was to cover “integration,” which the Amendment defines as the insertion of advertising (rather than technology) on the PurchasePro website. AuctionNet would pay the $4 million over time, and AOL would pay PurchasePro as it was paid. The net result of this tripartite arrangement was that AuctionNet committed to pay $3.2 million, PurchasePro received a net benefit of $2.2 million and AOL would pocket $1 million. PurchasePro reported the AuctionNet marketplace license sales ($1.76 million) as revenue for the fourth quarter of 2000. To take advantage of the AuctionNet functionality that it had licensed, Pur-chasePro needed to “integrate” the functionality into PurchasePro’s own platform, which serviced both its Global Marketplace and the NetBusiness Marketplace. This type of integration involved synchronizing technologies so that a visitor to Purchase-Pro’s marketplaces could purchase items at an auction hosted by AuctionNet or, in the future, could offer items for sale by auction. Matt Sorensen, a lower level PurchasePro marketing executive, was tasked with coordinating the integration efforts. As part of his responsibilities, Sorensen prepared a Statement of Work dated February 5, 2001. This document outlined the technology tasks to be performed. When it became apparent during the last week of March that AOL’s sales efforts would fall short, Kent Wakeford and Junior began looking for ways to make up the looming revenue gap. One of them raised the subject of the AuctionNet revenue that had been set aside for Purchase-Pro’s benefit. The payment of this money ostensibly would be triggered by Pur-chasePro satisfying the January 18, 2001 Amendment to the Advertising Services Agreement. (GX-2303). Junior called Layne and asked him to shepard through the system all necessary documentation (Tr. 959-60). PurchasePro’s general counsel, Scott Wiegand, opined that the Company’s audit trail would require a document that justified AOL’s payment. Since Sorensen already was coordinating the technological integration of AuctionNet, the task of preparing payment documentation ultimately was delegated down to him. Sorensen used the February 5 Statement of Work as a template and added a section from the AOL/AuctionNet agreement (also known as the Extended Insertion Order) and language from an internal AOL document that had been forwarded to PurchasePro. Finally, he added signature and date lines for AOL and PurchasePro. The resulting amalgam contained no price or payment terms. Read literally, the document allowed AOL to approve payment to PurchasePro for doing nothing more than conceiving of how to integrate the two technologies (rather than inserting advertising), something PurchasePro apparently had already done. To add to the confusion. Sorensen also called his new document a “Statement of Work” (“SOW”) and left the cover date the same — February 5, 2001. As noted above, the amount that AOL would pay PurchasePro was not specified in initial drafts of the second SOW, nor was the timing or manner of payment. In financial modeling done around the end of the first quarter, the parties initially contemplated a payment of $1 million. (See, e.g., GX-641.1). However, the final signed version of the second SOW quantified AOL’s obligation as $3.7 million, payable all in the first quarter rather than over time. See infra p. 46. D. Covering the Tracks 1. Altering Contracts Junior, like all senior PurchasePro executives, was very conscious of the documentation that Arthur Andersen required for revenue recognition purposes. One item of documentation required in every case was a copy of the contract upon which the claimed revenue was based. Arthur Andersen required that the contract be signed and dated prior to the end of the quarter. This presented a problem with respect to those sales made and/or contracts received after March 31. One such contract involved an AOL customer named China.com, Inc. AOL and PurchasePro sold a marketplace license to China.com prior to the end of the quarter. China.com signed the contract prior to March 31 (DX-1901, 1903) and wired full payment ($3.7 million) to AOL before the end of the quarter. (DX-1900). However, AOL did not actually receive the signed China.com contract by fax until Tuesday, April 4. Out of concern about what the auditors might say, Junior directed Sholeff to clean up the contract so that it looked like it was received before the end of the quarter. (Tr. 601, 771). Sholeff added to the contract in his own handwriting a date (March 31) and China.com’s address. He then created a photocopy that hid a post-it note showing the original fax transmission date. Finally, at Junior’s direction, Sho-leff reprogrammed a fax machine in AOL’s offices to show a date/time stamp of March 31. He faxed the altered contract to Layne who signed it and back dated his signature. (Tr. 602-07). Layne then placed the altered China.com contract into PurchasePro’s files for the accountants to review at a later date. Sholeff followed a similar procedure with respect to the Marketplace License sold to Monster.com. As discussed above, that deal was not finalized until Wednesday, April 5. The contract was backdated to March 31, 2001 and then run through the altered fax machine to make it seem as though AOL had received the contract on March 31. (Tr. 607). Once again, Layne signed the contract and placed it in Pur-chasePro’s files. Sholeff testified that Junior told him to use several different copy machines when altering the contracts because copy machines leave a signature that can later be traced. (Tr. 628). Sholeff further testified that he reprogrammed the AOL fax machine at Junior’s direction and that Junior looked over his shoulder as the reprogramming took place. (Tr. 605). 2. Deleting E-mails While Sholeff was busy altering contracts at Junior’s direction, Junior was taking steps to ensure that his incriminating e-mails did not see the light of day. On Monday, April 3, while still in New York, Junior called Ed Kim and Junior directed him to have the IT Department erase from PurchasePro’s server all e-mails sent and/or received by Junior, Sholeff, Layne, Chris Hammond and Stephanie Gulley (Junior’s secretary). Junior told Kim “that there were passages in those e-mails that nobody should see.” (Tr. 104). Kim testified that Junior’s request made him uneasy, so he consulted with Scott Wiegand. He then called Todd Morri-sette, who served as PurchasePro’s Director of IT Infrastructure. Kim gave the deletion order. Morrisette wrote down in his Day Planner the individuals for whom e-mails should be deleted (GX1276) and performed the task. Kim asked that Morrisette keep the deletion request confidential. Junior later asked Morrisette if he had “taken care of the request from Mr. Kim.” (Tr. 1858-59). Junior apparently felt uneasy about the situation because he also ordered Sholeff to have PurchasePro’s IT department delete the same e-mails from the server. (Tr. 643, 777-80, 829). Junior gave this directive in his office at PurchasePro during the second week of April after returning from New York. Junior told Sho-leff to explain, if asked, that Junior was embarrassed about having received sexually explicit e-mails. (Tr. 643). E. Verifying the Claimed Revenue Junior abandoned his Q1 sales efforts on Thursday, April 5. He flew home to Las Vegas the next day on his private jet, accompanied by his girlfriend and Jim Sholeff. Sholeff described Junior as “angry” and “very upset” because Purchase-Pro had missed its quarter. (Tr. at 623). At a refueling stop in Dallas, Junior called John Chiles, one of PurchasePro’s directors, to advise him that PurchasePro would miss its guidance by $3 million. (Tr. 1376). Nonetheless, Junior told Sho-leff to remain upbeat in public and tell anyone who asked that PurchasePro had made its quarter. (Tr. 623-24). Later that evening (Friday, April 6), Junior called Sholeff and Lane to advise them that he had figured out a way to save PurchasePro’s first quarter. Junior told them to meet him the next morning at a local eating establishment called the Bagel Cafe. (Tr. 624). Junior then called Mr. Chiles back to explain that further review of the numbers revealed that PurchasePro had made its quarter after all. (Tr. at 1377). Junior did not explain his scheme in the late night telephone calls to Layne and Sholeff. However, as we will see, the plan involved manipulating Arthur Andersen’s revenue recognition protocols. This would simply, be the latest installment in a long and unhappy history between Junior and PurchasePro’s auditors. Junior’ nursed numerous grievances against Arthur Andersen. He believed that Arthur Andersen had misled Pur-chasePro about its ability to recognize revenue immediately when PurchasePro switched from a subscription model to a license model in the summer of 2000. He also faulted Arthur Andersen for missing the deadline to sign off on PurchasePro’s 10Q report for the second quarter of 2000. Junior wanted to fire Arthur Andersen and publicly humiliate the accounting firm during one of his numerous appearances on CNBC. PurchasePro’s Board of Directors overruled him on both courses of action. There were no national accounting firms available to take Arthur Andersen’s place, and PurchasePro needed the credibility that a “Big 5” firm brought to the table. Arthur Andersen had its own problems with Junior. The accountants found him overbearing and manipulative during the revenue recognition process. After Junior threatened an Arthur Andersen accountant in the fall of 2000, the firm resigned. PurchasePro’s Board persuaded the accounting firm to reconsider, but Arthur Andersen imposed certain conditions. One of those conditions was to ban Junior from any involvement whatsoever in the revenue recognition process. All of Pur-chasePro’s internal revenue recognition decisions henceforth would be made by a committee consisting of Shawn McGhee, Scott Wiegand and the Company’s Chief Accounting Officer (Scott Miller). This troika would decide which sales to claim as revenue in a particular quarter. Arthur Andersen would either bless their decisions or not. Junior had played fast and loose before with PurchasePro’s revenue recognition procedures, but the plan that he outlined at the Bagel Cafe on the morning of Saturday, April 7 was a quantum leap in deception. The plan involved working the differential between AOL’s first quarter reporting date (April 18) and Purchase-Pro’s scheduled reporting date (April 25). Junior was convinced that Myer Berlow, Eric Keller and his other friends at AOL would be willing to help PurchasePro once AOL had reported its first quarter earnings. (Tr. 975-76). Because the Pur-chasePro transactions were such a small part of AOL’s overall revenue, Junior believed that the internet giant would not have to correct officially its Q1 earnings announcement to reflect the adjustments he had in mind. (Tr. 639). If Junior, Layne and Sholeff could make certain items of revenue appear viable until April 19, Junior believed that the AOL executives would bless the changes he had made in time for PurchasePro to meet its earning guidance on April 25. (Tr. 1194). The two areas in which Junior planned to gain revenue were the second SOW and the amount of commissions that Purchase-Pro paid to AOL for selling marketplace licenses. With respect to the former, Junior asked Layne to forge Eric Keller’s signature on the SOW. To facilitate the forgery, either Sholeff or Junior handed Layne the blue folder that contained Eric Keller’s April 5 letter regarding application of the $12.2 million commission check. (Tr. 978, 1199). Junior told Layne that Keller’s “would never see the light of day,” so he could lift Eric Keller’s original signature from it and put it on the SOW. (Tr. 979, 1195). Junior promised that Keller would sign this document once AOL reported its earnings on April 18, and the forgery would be removed from Purchase-Pro’s files. (Tr. 977, 983). With respect to commissions, Junior planned to cut AOL’s commission rate from 50% to 20%. This was just below the percentage that would require Purchase-Pro to offset the commission payments against the gross amount of marketplace license revenue. To fool the auditors until April 18, the conspirators needed to change the paperwork surrounding the two $12.2 million checks that Junior gave to Kent Wakeford. Eric Keller had already claimed for AOL the benefit of the entire amount in his April 5 letter. However, Junior had sole possession of this letter and would not show it to the auditors. The $12.2 million check itself presented a more difficult problem. The check that Junior gave to Kent Wakeford on the night of March 31 (No. 14808) contained the notation “Commissions” on the memo line. (GX-900). The stub originally attached to Check No. 14808 bore the same notation. (GX-900.2) However, Junior had the foresight to substitute checks on Monday, April 3. The new check that he gave to Kent Wakeford (No. 14809) contained no notation concerning the purpose of the payment and neither did the stub originally attached to it. (GX-901). Junior planned to alter the stub for Check No. 14809 to state that the $12.2 million payment covered a number of things, including only $3.7 million in commissions. The $6.7 million in top-line revenue generated by these changes allowed Junior to claim that PurchasePro had earned $42,550,550 in gross revenue during the first quarter of 2001. This number and a breakdown of its component parts were submitted to PurchasePro’s Board for use at its meeting held on Tuesday, April 10. (GX-37, 37.1). Among other topics, the Board reconsidered at this meeting the long discussed loan to Junior to ameliorate the default in his loan from Credit Suisse. “[Biased on many factors, including the company’s financial performance, the Company’s performance compared to its competitors and discussions with industry experts” the Board voted to pay Junior a $2 million bonus and reimburse him for $1 million in previously unclaimed expenses. (GX-36) (emphasis added). The Board would not have authorized the $3 million payment to Junior but for management’s assurance that PurchasePro had met its Q1 earnings guidance. The Board’s previous plan to loan Junior $3 million was scrapped because Arthur Andersen threatened to resign if the loan was made. However, the accounting firm blessed the bonus/reimbursement arrangement. The $3 million that Junior received from PurchasePro was wired directly to Credit Suisse and used to reduce Junior’s loan balance. The infusion of funds was timely. On Monday, April 9 and Tuesday, April 10, Credit Suisse sold another 830,000 shares of Junior’s stock, thereby further depressing PurchasePro’s trading price. Credit Suisse stopped selling (albeit temporarily) after receiving the $3 million wire. Pur-chasePro’s stock price stabilized