-1- UNITED STAT ES DIS TRICT COURT F OR THE D ISTRIC T OF CO LU M BIA S EC URI TI ES & E XCH ANGE : COMMISSION, : : P la in t if f, :

: v. : Ci vi l A cti on No. 05 -36 (GK) : CHARLES JOH NSON, e t al . , :

: De fend ant s. :

M EM OR

AN DU M OR

DE R

Plaintiff Securiti es an d Ex chang e Commissi on (“SEC”) f iled this action ag ainst four i n d i v i d u a l D e f e n d an t s ( J o h nT u l i , K e n tW a k e f o r d , C h r i s t o p h e r

B e n yo , an d

M i c h a e l K e n n e dy, collectively

“De fenda

nts”) on January

1 0 , 2 0 0 5 , all eg ing a

fra udulent scheme to materially and improperly inflate the announce d and reported revenue s of P urcha sePro.com, Inc. (“ Purchase Pro”). On April 24, 2008, an e leven- member jury found De fenda

nt Christopher B eny o (“B eny o”) liable on Count Three of

this Com plaint, f

or aiding and abetting Purchase Pro’s violations of E x chang e Ac t Section 1 0 ( b ) , 1 5 U

. S. C. § 7 8 j( b ) , an d Ru le 1 0 b

- 5

. B e n y o w a s f o u n d n o t l ia b le o nth e rema ining thr e e of the fo ur c la ims a g a ins t hi m. The SEC has now filed a reque st for the entry

of three reme dial order s ag ainst Be ny o. Specifica lly , the SEC seeks a pe rmane nt injunction aga inst any future violations by

Be ny o of the

a p p l i c a b l e s e c u r i t i e s l aw s w h i c h w e r e v i o l a t e d i nt h i s c a s e , i mp o s i t i o no f a p e r m an e n tb ar

a g a i n st B e ny o s e rv inga s an o ff ic e r o r d ir e c tor

of a pu bli c ly he ld c omp any , a

nd imp os iti on

of a c ivi l

mon e tary pe na lty of $1 2 0 , 0 0 0

. H a vin g c on sid e re d th e SEC ’s Me mor and um i n Su pp or t of Re me die s,The fac ts pe rtaining to this case are set forth in g reat de tail in t h i s C o u rt ’s 1 Memorandum Opinion de ny ing Be ny o’s Motion for J udg ment as a Matter of L aw o r, i n t he Alternative, for a

New T rial [Dkt. #505] , issued J uly 14, 2008; this C ourt’s Opinions denying Plaintiff’s Motions for Summary J udg ment [Dkt. #304, #306, #308, #310], i ssued J anuar y 16, 2008, and the exhaustive O pinion issued by J udg e Walter D. K elley , J r. of the E astern D istrict of Virg inia, issued May

15, 2008. At the h e art o f th e s c h e me in w h ic h B e n y o p arti c ip a te d w a s a s h a m St a te ment of 2 Work betwee n Purchase Pro and Amer ica Online, I nc. (“ AOL ”) that would supposedly ref lect that cer tain “integ ration work” (integ rating the technolog y of a third c ompany , Au ctioNet, which provided Interne t auction servic es, into the websites of Purc hasePro a n d AO L Ne t Business) had occur red in the F irst Quarte r of 2001, whe n in f act it had not. The SOW would be used to convince Purchas e Pr o ’ s a

u d it o r s , A r

th u r Ander sen, that Purcha sePro could re cog nize $3.65 mil lion in revenue in the First Qua

rter of 2001. Recog nition of the $3. 6 5 m i l lion would help PurchasePro r eac h the reve nues it had previously publicly projec ted to the investing public. See Court’s January 16, 2008 Memorandum Opinion De ny ing Defe ndant B eny o’s Motion for Summary J udg ment [Dkt. #304] for a more detailed discussion. -2- the Def endant’ s Opposition, the Re p l y , an d t h e ex tensive re cord in this case , including the trial test im o n y a n d e xh ib it s , th e Co u rt g r an ts th e SE C’ s r e qu e s t in p art an d d e n ie s it in p art f or the fo llo wi ngre a so ns . I

. Be ny o was Purchas eP ro’s Senior Vic e President f or Mar keting and Ne twork 1 Deve lopment during the relevant time period, namely , Marc h and Apr il of 2001. The SEC presente d substantial evidence at trial in support of i ts alleg ations that Be ny o helped orchestrate creation of a f r a u d u le n t St a te me n t o f Wo r k ( “ SO W” ) th a t w a s dr a f te d an d e xe c u te d a f

te r th e close of Purchase Pro’s First Quarter of busi ness, ending March 31, 2001, but was ba ck-dated to Fe bruar y 5, 2001, befor e the c lose of the First Quar ter, in an ef

fort to lead a

uditors and investors into believing that the r e v e n u e d e s c r ib e d in th a t S O W w a s r e c o g n iz e d in th e F ir s t Q u arte r . T h e SE C p r e s e n te d 2 evidenc e at tria l that PurchasePro did not complete the projec t documented in the Statement of Work befor e the c lose of the F irst Quarte r, and that Be ny o was invol ved in conce aling that fac t. Among other e vidence prese nted, Matthew Sore nsen, a Purc has e Pr o e mp lo ye e , te s ti f ie d th at B eny o proposed-3-

the cr eation of a

n I nterne t hy

perlink desig ned t o g ener ate the f alse a ppear ance to PurchasePro’ s auditors and investors that the service s des cr i b ed i n the Statement of Work had a ctually been perf ormed be fore Marc h 31, 2001. Prior to PurchasePro’ s ann o u nceme nt of its First Quar ter e arning s in an April 26, 2001 analy st call, Purchase Pro executives held a number of meeting s to disc uss e x actly what amount of

reve nue could be rec og nized in the First Quar ter. Acc ording to Dale B oeth, Purcha sePro’s Senior Vice Pre sident for Strateg ic Deve lopment, when the r evenue associate d with AuctioNet and the SOW were discussed, Be ny o voiced no opposition to including it in Purcha sePro’s quar terly ear ning

announce ment. Be ny o was an active participa nt on the April 26, 2001 analy st confer ence call, and made a number of r efe renc es to the re venue r elated to Purc hasePro’ s relationship with AOL

. The SEC also prese nted evidence at trial that Be ny o failed to disclose a ny fac ts relating to the fra

udulent

natur e of the SOW d

ur ingthat c a ll. I I

. Section 21(d)( 1) of the E x chang e Ac t, 15 U.S.C. § 78u(d)(1), a uthorizes the C ourt “to enjoin” a

ny “ac ts or practices constituti ng a viol ation of any provision of this tit le [or] the rules or reg ulations there under.” Such injunctive relief may be provide d by

making a “pr oper showing .” I d. I njunctions are a

ppropriate reme dies with r eg ard to those who direc tly violate the sec urities laws and those who a id and abe t violations. S ee SEC v. Fe hn, 97 F.3d 1276, 1296 ( 9th Cir. 1996). I n SE C v. Sa vo y

I nd us tr ie s, 58 7 F .2 d 1 14 9, 11 68 (D .C. Cir . 1 97 8) , o ur Cou rt of Ap pe a ls stated that, whe re the SEC seeks an i n j u n ction reg ardingfuture c onduct (rather than to ha lt an

on g oin g vio la tio n) , “ the ult imate te st is wh e the r the de fe nd ant’ s p a st c on du c t in dic a te s . . . the re is

a re asonable likelihood of further violation(s) in the future.” The Court of Appeals has applied the following fac tors in assessing whether an injunction is warr anted: (1) whether the violation was “a

n-4-

iso la te d in c ide nt” ; ( 2) wh e the r t he de fe nd ant h a s “ de mon str a te d tha t he un de rs tand s h is c on du c t to have be en wr ong ful”; (3) whether he gives “sufficient assuranc es aga inst future violations”; and (4) whether his “business activiti es m ay prese nt him with further temptations to violate the law.” I d.; SEC v. Huttoe, Ci vil Action No. 96-2543 (GK), 1998 WL34078092, at *12 (Sept. 14, 1998). A. As to t

he fi rs t f a c tor , it is t ru e that B e ny o c omm itt e d a numbe r of se pa ra te a c tio ns to

a c hie ve his de sir e d r e su lt o f m isl e a din g the a ud ito rs and

the pu bli c a bo ut t he a mou nt o f r e ve nu e to be re cog nized in the First Quar ter of 2001. I

n that sense, his violation of the Exchang e Ac t included a number of discre te individual acts, all desig ned to mislead the pu blic, and we re not “ isolated incidents.” For example, it was B eny o who knew that the AuctioNet integ ration projec t could not possibly be finished by

Marc h 31, 2001, the end of the First Quar

ter, and who offere d the sug g estion that Purc ha se Pr o e sta

bli sh a hy pe rl ink to the Au c tio Ne t sit e in or de r to c re a te the a pp e ara nc e that f ull int e g ratio n h a d b e e n a c c omp lis he d. B e ny o’ s p ro po sa l w a s o ne imp or tant c omp on e nt o f t

he ov e ra ll plan to mislead investors about the status of PurchasePro’ s reve nues for the First Quarter of 2001. I t wa s on Ap ri l 2, 20 01 , a ft e r t he c los e of

the F ir st Q ua

rt e r, that B e ny o p ro po se d h is p lan to c re a te th e h y p e r li n k to th e A u c ti o n e t s it e an d th e n “ c ir c le b a c k ” to th e a c tu a l w o r k b e f ore the auditors

arr ived to perf

orm their full inspection of the business. I n addition, Be ny o participated in at least one meeting of hig h-leve l PurchasePro e mploy ees which occ urre d shortly

befor e Purcha sePro’s announc ement on Apr il 26, 2001 of its First Quarte r 20 01 re ve nu e s. At that me e tin g , B e ny o did no t r a ise any ob je c tio ns to t

he ann ounc e me nt n or

did he inform those pr esent of the fac ts about creation of the deceptive hy perlink. When PurchasePro

o f f i c e r s h e l d t h e p u

b l i c c o n f e r e n c e c a l l o nA p r i l 2 6 , 2 0 0 1 w i t h s t o c k an a l ys t s an d

o t h e r s , B e n yo-5-

s p o k e an d

r e f e r r e d t o r e v e n u e t h a tP u r c h a s e P r o h a d r e c e i v e d d u e t o i t s r e l a t i o n s h i p s w i t h A O L, knowing that that ref

ere nce inc luded the Auc tioNet reve nue which ha d not in fact be en re ceive d. Thus, it is t rue that Be ny o’s wrong ful ac tions in t his case did include, as t he S EC arg ues, a series of misrepre sentation and omissions of material f acts. Howeve r, for purposes of considering whether these a ctions were “isolated incide nts” under Savoy I ndustries, it is clea

r t hat t hey wer e all one ong oing “ incident” r elating to the inclusion of one ite m of re ve nu e , a lbe it the “ inc ide nt” wa s c omp os e d o f s e ve ra l di ff e re nt a c tio ns a ll d e sig ne d to achie ve the same g oal. Moreove r, it is sig nificant that Be ny o had never previously

committed such fra udulent conduct or

violation of the Exchang e Ac t. He had be en a hig h level manag er in this ar ea of the bu sin e ss w or ld f

or a numbe r o f y e ars pr ior

to 2 00 1, and th ere is no thi ngin t he re c or d to

su g g e st that he ha d e ve r c omm itt e d il le g a l a c ts or mis le d the pu bli c . Th e re fo re , v ie we d in c on te xt, his hy perlink sche me, with the attenda nt a ctions he took to acc omplish it, did constitute “an isolated i n c i d e n t , ” a s d e s c r i b e d

i nS av o y. B. I t must not be for g otten that the issuance of a p er m an en t injunction ag ainst future

secur ities violations i s a “drastic remedy and not a mild prophy lactic.” SEC v. Yun, 148 F. Supp.2d 1 2 8 7 , 1 2 9 3 ( M

. D

. F l a . 2 0 0 1 ) , v a c a t e d o no t h e r g r o u n d s , 3 2 7 F

. 3 d

1 2 6 3 ( 1 1 t h C i r . 2 0 0 3 )

. In deter mining the appropr iateness of imposing such a dra stic remedy , which would undoubtedly have a fa r r eaching impact upon B eny o’s future livelihood and succe ss in the commerc ial world, the courts have focuse d on whether there is a rea sonable likelihood that, “unless enjoined, the violations will continue.” SEC v. First J erse y Securities, 1010 F .3d 1450, 1477 (2d Cir. 1996). Th e SEC ha s n ot c arr ie d it s b ur de n o f p ro of on thi s is su e . A s n ote d, B e ny o is a “ fi rs t offe nder” and this episode wa s an isolated o n e i n a ca ree r that spanne d more than te n y ear s. The-6-

SEC cannot rely

only upon “the mer e fa cts of past viol ations.” SEC v. L evine, 517 F. Supp.2d 121, 147 (D.D. C. 2007). I n short, it “has not demonstrate d that the def endant[] enga g ed in the ty pe of repe ated a

nd persistent m isconduct which usually justifies the i ssuance of i njunctive relief.” SEC v. National Student Marke ting Corp., 457 F . Supp. 682, 715 (D.D.C. 1978). Th e SEC a lso argue s th a t a pe rm ane nt i nju

nc tio n s ho uld

be e nte re d a g a ins t B e ny o b e c a us e his pr e se nt b us ine ss a c tiv iti e s c ou ld pr ov ide op po rt un iti e s fo r fu

rt he r v iol a tio n o f t

he Exc ha ng e Ac t. B e ny o h a s b e e n wor ki ng as an E xec uti ve Vi c e Pr e sid e nt f or Sa le s and

Mark e tin g sin c e 20 02 a t a private f irm called N uvox . Nuvox claims on i ts web site that it is “one of the l arg est Competitive L oc a l E xch a ng e Con c e rn s in the Sou the a st U nit e d St a te s.” Ex . 1 to P la int if f’ s Me mor and

um i n Support of R emedies. Although Nuvox was a publicly held company , it has been pr ivately held for the la st f ive y e ars . As a

no n- pu bli c , p ri vate c omp any , N uv ox ha s n o le g a l r e po rt ingob lig a tio ns to the SEC . T he re fo re , it

is v e ry do ub tf ul t hat e ith e r i ts o ff

ic e rs or its e mpl oy e e s c ou ld c om mit

secur ities violations reg ardingfinanc ial disclosures they have no le g al obliga

tion to make. C. The SEC also argues t hat Beny o has not rec og nized the wrong ful nature of his actions b e c a u s e h e t e s t i f

i e d i na J u l y 2 0 0 7 d e p o s i t i o nt h a t h e t h i n k s h e d i d n o t h i n g w r o n g . N e e d l e s s t o s a y, Be ny o has a right to vig orously contest the SEC’s alleg ations and wa s not require d “to behave like Uriah Heep in order to avoid an injunction.” SEC v. First C ity Financ ial Corp., 890 F.2d 1215, 1229 (D.C. Cir. 1989). D. For

all these re asons, the Court conc ludes that a p er m an en t injunction ag ainst the commission of future Exchang e Ac t violations i s u n s u p p orted by the evidenc e, and is fa

r too dr a c on ian a

re me dy in l ig ht o f B e ny o’ s a c tiv iti e s and pe rs on a l hi sto ry . H a vin g sa id that, t he re is s til l

a nee d, in ligh t o f Be n y o ’s s ignif icant role in devising the scheme to misl ead the auditors and the-7-

public, to provide an a dditional deg ree of protection to the publ ic for a li mited period of time. Ba sed

o n a l l t h e f

a c t o r s d e s c r i b e d , t h e C o u rt c o n c l u d e s i t a p p r o p r i a t e t o e n t e r

ani n j u n c t i o ne n

j o i n i n g B e n yo from committing f

utur e violations of the Ex chang e Ac t for a pe riod of five y ear s from the date of this Order. I I I

. The SEC also seeks a perma nent inju n ct i o n enjoining B eny o from ser ving a s an office r or dire ctor of a

publicly held company . For

the r ea s o n s alre ady

discussed, the Court

c on c lud e s th a t a

pe rm ane nt b ar f

ro m se rv inga s an of

fi c e r or dir e c tor of a pu

bli c ly he ld c omp a ny

is to t ally inappropriate and dispropor tionate to the statutory

violation committ ed. In evaluating whether such a b ar i s ap p ro p riate, the courts ofte n examine the following fac tors which ar e ver y sim ila r t o th os e we ig he d wh e n c on sid e ri ngwh e the r o r n ot t o im po se a pe rm ane nt i nju

nc tio n a g a ins t vio la tio ns of

the Exc ha

ng e Ac t. I n SEC v. Pate l, 61 F .3 d 137 , 142 (2 d Ci r. 19 95 ), the c ourt se t f or th the following fac tors wh i ch ar e usually considere d in making this dete rmination: “(1) the ‘e g re g iou sn e ss’ of the un de rl y ingse c ur iti e s v iol a tio n; ( 2) the de fe nd ant’ s ‘ re pe a t of fe nd e r’ status ; (3) the de fenda

nt’s ‘role’ or position when he e ng age d i n t h e fr aud; (4) the defe ndant’s deg ree of scienter ; (5) the de fenda

nt’s economic stake i n the violation; and (6) the likelihood that misconduct will recur .” As to t he “ e g re g iou sn e ss” of B e ny o’ s vio la tio n, wh ile it wa s se ri ou s and c le arl y int e nd e d to mislead, it was not of a ma g nitude to support a per manent injun ct i o n. The Court has a lrea dy

e xami ne d th e oth e r P a te l f a c tor s, e xce pt B e ny o’ s e c on omi c sta ke in the vio la tio n. Whil e B e ny o d id not actually gain any

money from his violation of the Exchang e Ac t, he did have a substantial

ec o n o m i c stake in the transac tion. He ea rned a g ood salary

at Purcha sePro, had substantial other be ne fi ts su c h a s sto c k op tio ns and a re te nti on bo nu s, a nd anti c ipate d that Pur c ha se Pr o would-8-

c on tin ue to p ro sp e r i n th e futur e . A s to B e ny o’ s de g re e of sc ie nte r, B e ny o c e rt a inl y kn e w e xac tly what he w as doing and the co n s equenc es of f ailure by Purchase Pro to meet its projected r evenue g oa ls. As noted, for

the re asons stated in Section I , a permanent bar aga inst servingas an of fice r or di r e c t o r o f a p u

b l i c l y h e l d c o mp an y i s f

ar t o o dr a c o n i an a r e m e dy . G i v e n t h e s p e c if ic int e nt w ith which B eny o acte d and his understa nding at the time that his actions were v ery questionable, the Court concludes that a five y ear bar is appr opriate. I V. Section 21(d)( 3)(A) o f t h e Ex chang e Ac t, 15 U.S.C. § 78u(d)(3)(A ), authorizes imposit ion of ci v i l m o n ey penalties for

violations of the Ex chang e Ac t. Aiders and a bettors ar e

su bje c t t o s u c h m o n e t ar

y p e n a l t i e s . S e c t i o n2 1 ( d ) ( 3 ) ( B ) c o n t a i n s a t h r e e - t i e r

r an g e o f p e n a l ty amounts that may

be imposed, depe nding upon the criter ia listed. Table I Iof 17 CFR 201.1002, sets for th the maxi mum penalty amounts for “ violations

occur ring afte r F ebrua

ry 2, 2001. ” T ab le I Ishows that the maxim um amounts under Section 21(d)( 3) of the Ex chang e Act are adjusted as f ollows: Tier 1, $6,500; Tier 2, $60,000; and Tie r 3, $1 20 ,0 00

. Th e SEC se e ks the ma ximum pe na lty un de r Ti e r 3 of $1 20 ,0 00

. Th a t re qu e st i s ju st plain foolish. Given the ec onomic and re g ulatory climate in which we now live and have lived for the past dec ade or

more, to asse ss the maxi mum mo n et ar y penalty ag ainst Be ny o -- who r ece ived not a penny

of g ain for his violation of the Exchang e Ac t when o t h er s h ave stolen a nd bilked inv e sto rs ou t o f mi ll io ns of doll ars (n ot t o s ay bil lio ns in o ne re c e nt h ig hly pu bli c ize d c a se in particula r) - - demonstrates the poor pr osecutoria l judgment of the Commiss ion. I t is hornbook l aw that the purpose of a civil monetary penalty is to punish the defenda nt and deter him and others fr om securities violati o n s . S E C v. Kenton Capital, L td., 69 F.Supp.2d 1, 17Af te r h is a c qu itt a l, B e ny o w a s r e hir e d b y Nuvo x as a

n e xec uti ve vic e pr e sid e nt. 3 -9- (D.D.C. 1998). I n this c ase, Be ny o has alre ady been signific antly punished. As a fir st tim e off ender , he has e ndured a

four month cr iminal trial where he wa s acquitted, the pr esent seve n wee k civil trial wh e re he wa s f

ound lia ble on on ly on e of the fo ur c ha rg e s a lle g e d a g a ins t hi m, t he los s o f h is employ ment at Purcha sePro, the loss of his full time e mploy ment at Nuvox when he wa s indicted, 3

and the lia bil ity fo r w hat mu st und ou

bte dly be ma ssi ve le g a l bi lls inc ur re d to de fe nd him se lf

. Wh ile t h e C o u rtc an n o tp u tan y d o l l ar f i g u r e o nt h e e m o t i o n a l d i s t r e s s an d r e p u t a t i o n a l d a m a g e t h a tB e n yo has suffe red, its exist ence cannot be discounted. I n light of all the fac ts discussed, and the f act that two juries have found substantially in Be ny o’s favor, the Court c o nsiders Tier 2, the maxim um

a mo u n t o f

w h ic h is $ 6 0 , 0 0 0 , to b e appropriate. S e e SE C v

. Ra mo il M an a g e me n t Ltd

. , 2 0 0 7 WL 3146943, * 13 (S.D.N.Y. Oc tober 27, 20 07) (c ase w as “not Enr on,” def endant wa s neither “ a criminal master

mind” nor the “primar

y wrong doer,” and “g ained nothing f rom his actions.”). T he Court, in the exercise of its discr etion, finds that a fine of $35,000 to be paid over a per iod of two y ear s , is s u f

f ic ie n t to a d e qu a te ly p u n is h B e n y o an d d e te r h im an d o th e r s f r o m v io lation of

the Exc ha ng e Ac t.

Janu ary 27 , 2 00 9 /s/ Glady s Kessler Un i t edS t at es Di s t ri ct J u d ge Copies via ECF t o all couns el of recor d