Time Warner Settles AOL Cases For $510 Million

Time Warner Inc. yesterday agreed to pay $510 million to settle criminal and civil charges stemming from an accounting scandal at its America Online division, moving to end a messy affair that tarnished its image and impeded its business after its merger with AOL in 2001.

Both Time Warner and Dulles-based AOL pledged to cooperate in ongoing civil and criminal investigations of individuals, and to clean up various accounting and internal practices at the Internet company. In return, Time Warner avoided a criminal prosecution and appears on track to settle civil allegations by the Securities and Exchange Commission without admitting or denying wrongdoing. The SEC has yet to approve a proposed settlement.

Deputy Attorney General James B. Comey Jr. warned that Time Warner and AOL could still face criminal charges if the companies do not cooperate fully with the investigations. But he said the government was willing to accept a settlement to avoid harming those not directly involved.

"The government has achieved the result that minimizes the collateral damage to shareholders and employees, while imposing appropriate punishment and protecting the rights of victims," Comey said at a news conference.

The settlement, he said, would allow AOL to "make amends for its conduct and clean up its act, in return for a stiff penalty and far-reaching reforms."

Time Warner executives seemed pleased with the outcome, which would allow the company to put aside its legal troubles and focus on rebuilding AOL and strengthening its cable television, movie and publishing divisions.

"While there are still challenges ahead, the steps we announced today will help to remove a cloud that has been hanging over the company for some time now," Time Warner chairman and chief executive Richard D. Parsons wrote in a memo to employees.

The government blocked Time Warner's ability to raise money through new stock or bonds as it investigated a series of unconventional deals at AOL that helped pump up advertising and e-commerce revenue before and after the merger in January 2001. Several of the deals were first detailed in The Washington Post in July 2002.

The Justice Department yesterday charged America Online with aiding and abetting securities fraud in one of those deals, for allegedly helping a small business software company, PurchasePro.com Inc., inflate its revenue through sham transactions. PurchasePro, in turn, helped AOL boost it revenue.

Four former executives at the now-defunct Las Vegas company agreed to plead guilty to criminal charges arising from their involvement. As part of yesterday's settlement, Justice Department officials said they would defer prosecution of America Online for two years, and would drop the charges altogether pending the company's cooperation.