SEC Approves $300M Deal in AOL Scandal
Washington Post Staff and Wire Reports
Monday, March 21, 2005; 1:08 PM
http://www.washingtonpost.com/ac2/wp-dyn/A53801-2005Mar21?language=printer
NEW YORK - The Securities and Exchange Commission has approved a deal reached in December with Time Warner Inc. under which the world's largest media company will pay $300 million to settle federal fraud charges stemming from an accounting scandal at its America Online division.
As part of the settlement announced today, Time Warner will neither admit nor deny any wrongdoing. However, it has agreed to appoint an independent examiner who will further review the company's accounting for several previous transactions.
Time Warner has restated its financial results to reduce the amount of online advertising revenues it reported by about $500 million from the fourth quarter of 2000 through 2002, the SEC said. The examiner's report, which is expected to be done within six months, could result in further restatements.
The details of the deal are in line with a settlement that the company had proposed to the SEC and disclosed last December. At that time, the company also said it agreed to pay another $210 million to settle charges of criminal securities fraud in a separate investigation by the Department of Justice.
Time Warner's stock fell 40 cents, or 2 percent, to $18.30 in midday trading on the New York Stock Exchange in line with an overall decline in the market. Its shares have traded in a 52-week range of $15.41 and $19.90.
Together, the two settlements lifted a cloud of uncertainty that had been hanging over the company for more than two years. Time Warner is now hoping to use its improving balance sheet to pursue acquisitions, primarily the cable assets of Adelphia Communications Corp. The agreement should free Time Warner to once again issue stock and bonds to make acquisitions.
"We're pleased to have resolved the SEC's investigation of the company," Time Warner spokeswoman Mia Carbonell said. "We're committed to cooperating with the independent examiner as well as fulfilling all of our other obligations under the settlement."
Time Warner still faces lawsuits from shareholders who lost billions of dollars during the accounting scandal. The company has not predicted how much it would cost to settle that litigation. Time Warner lawyers had sought language in the settlement agreement that would minimize the cost of resolving lawsuits filed by shareholders of AOL and Time Warner.
After revelations of its unconventional deals surfaced in July 2002, Time Warner conducted an internal investigation of AOL and turned over millions of pages of documents to the government. The company eventually restated $190 million in AOL revenue from questionable ad deals with other firms. Later, Time Warner restated financial results from AOL Europe after regulators complained that the Internet company had tried to shield the parent company from its losses.
The investigations have taken their toll on Time Warner. America Online became such a liability that the "AOL" was scratched from the parent company's corporate name. AOL co-founder Stephen M. Case resigned as chairman of the merged company (he remains a member of the board of directors) and AOL became a mere division, even though the Internet firm originally had used its stock to buy Time Warner.
With the number of AOL Internet service subscribers dropping, the company is trying to make its AOL.com site attractive to a broader audience of Web users. AOL plans to sell ads and various services on the revamped site.
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George Antunes Voice (713) 743-3923
Associate Professor Fax (713) 743-3927
Political Science Internet: antunes at uh dot edu
University of Houston
Houston, TX 77204-3011
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