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Aol & TW
Aol & TW
Time Warner Inc. agreed to pay securities regulators $300 million to settle long-running civil
fraud charges related to online advertising deals that helped the company artificially inflate
revenue.
The settlement closes another chapter on more than two years of federal investigation into the
accounting practices and deal making activities at Dulles-based America Online Inc. before and
after its January 2001 merger with Time Warner.
Time Warner said it had restated financial results for 2000 to 2002 by about $500 million to
correct its accounting for deals under scrutiny by the Securities and Exchange Commission. The
company did not admit or deny wrongdoing as part of the settlement.
The SEC also settled with the company's finance chief, controller and deputy controller, who
stood accused of causing false financial reports to be filed in connection with $400 million worth
of transactions that Time Warner negotiated with German media company Bertelsmann AG. The
men, who were responsible for approving corporate accounting practices, received false
information from unnamed insiders and "failed to pursue facts and circumstances" that would
have thrown into question the payments in 2000 and 2001, according to court papers.
Chief financial officer Wayne H. Pace, controller James W. Barge and deputy controller Pascal
Desroches are not required to pay fines or face other sanctions as part of yesterday's settlement.
The three men, who did not admit or deny wrongdoing, remain employed at Time Warner,
company officials said. Their defense lawyers declined to comment.
SEC enforcement chief Stephen M. Cutler said the charges in the complaint detail "a wide array
of wrongdoing" at the world's biggest media company, including schemes to inflate advertising
revenue and subscriber numbers. Time Warner also helped PurchasePro.com Inc., Home store
Inc. and an unnamed California software company commit securities fraud by engaging in ad
deals that allowed the firms to artificially boost revenue, the SEC said.
Cutler noted that Time Warner's AOL unit had been operating under a May 2000 order to cease
and desist from fraudulent activity at the time some of the improper conduct took place. In that
2000 order, AOL agreed to pay $3.5 million to settle charges that it had improperly tamped down
expenses for acquiring new subscribers by capitalizing them over time.
In a prepared statement, Time Warner chairman and chief executive Richard D. Parsons
yesterday said he is pleased to have resolved the SEC case.
In an e-mail sent to employees, Parsons said yesterday's settlement opens a new chapter for the
company and its operations.
"Now that this chapter is closed, we can look forward to putting all of our energies behind
delivering sustained, superior growth to our stockholders," Parsons wrote.
As part of the SEC settlement, Time Warner agreed to open its books to an independent
examiner, who will review the company's accounting practices for deals it brokered with 17
other companies from June 2000 to December 2001. Further restatements may be needed after
the examiner's review, Time Warner said in a recent securities filing.
The company said it would not be able to deduct the $300 million civil fine for tax purposes or to
cover settlements of related shareholder lawsuits. Time Warner faces 30 ongoing class-action
lawsuits, according to an annual report it filed last week with the SEC.
Time Warner had outlined the terms of the SEC settlement in December, when it resolved a
related criminal case filed by the Justice Department by agreeing to pay $60 million in penalties
and $150 million to create a fund for shareholders. Time Warner could be subject to criminal
prosecution if it violates the terms of the Justice Department deal in the future.
Securities regulators and federal prosecutors in Northern Virginia said they continue to probe
individuals who may have taken part in the fraud.
James T. Coffman, an assistant SEC enforcement director, said in a written statement that
investigators will turn their attention "to those primarily responsible for the company's fraud and
improper reporting."
In January, the U.S. attorney for the Eastern District of Virginia, Paul J. McNulty, indicted two
former AOL officials and four executives at PurchasePro, a Las Vegas software company.
Several other former AOL employees remain under scrutiny. Time Warner stock closed at
$18.42 yesterday, down 28 cents, or 1.5 percent.
http://www.washingtonpost.com/wp-dyn/articles/A53801-2005Mar21_2.html