Lexington man who led billion-dollar company heads to prison over lies about finances

A Lexington man convicted of fraud in connection with a $1 billion company was sentenced Friday to 21 months in prison for probation violations, including lying about his finances.

It is the second additional prison sentence for Charles E. Johnson Jr. after he finished his initial nine-year sentence in the fraud case involving PurchasePro, a company he founded.

Johnson, 62, known as Junior Johnson, was placed on supervised release — essentially probation — after he got out of prison in 2016. He was required to provide probation officers with information about his finances, in part so they could keep track of his ability to pay $9.7 million in restitution in his initial case.

But in 2019 and again this year, he admitted he did not disclose information as required.

In the 2019 case, federal authorities alleged that while Johnson had paid only $10,729 in restitution, he had lost lost more than $442,000 gambling at a Las Vegas casino and also hadn’t reported his interest in several companies.

Chief U.S. District Judge Danny Reeves sent Johnson back to prison for 10 months for those violations.

In the most recent case, Johnson pleaded guilty earlier this year to giving false information to a probation officer.

The prosecutor, Assistant U.S. Attorney Paul McCaffrey, said in a sentencing memorandum Johnson lied about his finances so he could use money for purposes other than paying restitution.

Soon after finishing his 10-month sentence in August 2020 for the earlier violations, Johnson had a friend set up a company called OZE LLC. Johnson claimed it was a drive-thru COVID-19 testing business, but it mostly served as a “pass-through entity and a slush fund” for Johnson, the memo said.

Johnson’s friend, identified only as G.D. in the public court record, provided Johnson with a debit card and blank, pre-signed company checks, and Johnson also got access to transfer money electronically.

He used money from the company to pay off more than $60,000 in credit card debt for him, his ex-partner and a girlfriend, McCaffrey said. He also paid $27,000 on a personal loan and disguised the purpose by putting “rent” on the memo line of the check.

Johnson also issued checks and payroll payments through OZE to his girlfriend and other young women he met on the internet, even though none of them worked for the company, and tried to hide the purpose with entries such as “travel” and “consulting” on the memo lines, according to the prosecutor’s memo.

He also issued tax statements to some of the women to make it appear they were being paid for work for OZE, not “personal companionship” for Johnson, McCaffrey said.

All told, Johnson used his control over OZE funds for at least $140,000 in personal expenses, but told the probation office he got just $3,500 a month in salary from the company.

“The defining characteristics of this Defendant are compulsive lying, arrogance, and a complete lack of respect for the law,” the prosecutor said in the memo.

After federal officials moved to revoke his probation, again, Johnson left Kentucky, going to Las Vegas and missing a court hearing before ultimately ending up Minnesota, where he was arrested in May.

In addition to pleading guilty to making false statements, Johnson pleaded guilty to failing to appear for a court hearing.

Big money and a big fall

Johnson’s story is familiar to many people in Central Kentucky.

The Lexington native played on the Lafayette High School team that won the Kentucky boys’ basketball championship in 1979.

He went on to found PurchasePro, a software provider that reached a market capitalization of $1.2 billion after it went public in 1999 and investors snapped up shares of emerging tech companies in the so-called “dotcom boom.”

Johnson had a mansion in Las Vegas and a private plane, and donated millions to causes in Lexington, including $2 million for a new gym at Lexington Catholic High School.

However, regulators later charged he had lied about PurchasePro’s revenue. He was convicted in 2008 conspiracy, securities fraud, witness tampering and obstructing an official proceeding, according to court records.

Johnson’s conduct at the company included lying about the company’s finances, altering records, telling employees to lie and destroy or hide evidence, and even giving his lawyers fabricated documents as part of his defense, McCaffrey said in the sentencing memo.

Some investors in Kentucky who backed Johnson early on made a lot of money, but the company ultimately went bankrupt, costing others millions.

In court Friday, Johnson’s attorney, Yale Galanter, said Johnson has been more contrite over his latest violations than Galanter had ever seen him.

“I think he has been humbled by this experience,” Galanter told Reeves.

Johnson has been in custody since May and was in handcuffs and chained at the ankles in court. He spoke only briefly, getting choked up as he apologized to the court and his probation officer.

McCaffrey told Reeve’s that Johnson’s lies were part of a long-standing pattern going back to his days at PurchasePro.

Reeves sentenced Johnson to six months for violating the terms of his release and 15 months on the criminal charges of giving false information to the probation office and missing a court hearing, to be served consecutively.