The Justice Department said "six or more" unidentified AOL executives were involved in the scheme with PurchasePro, in which both companies overstated ad revenue.
Time Warner stock, which had been around $16 a share for months, began rising this week as word of the impending settlement spread on Wall Street. Yesterday, the company's stock closed at $19.38 a share, unchanged from the day before.
Audio: The Washington Post's Jonathan Krim discusses Time Warner's $510 million settlement of criminal and civil charges from an accounting scandal at AOL.
A Look Back AOL Time Warner stock price weekly closes.
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.
The $510 million in Time Warner penalties and fines would be divided between the Justice Department, the SEC and a fund for shareholders who lost money on Time Warner stock. While the Justice Department agreement is final, the company's proposed deal with the enforcement division staff of the SEC must still be reviewed by the agency's five commissioners, who can accept, reject or amend the proposal. Their review could last several months.
If the proposal is approved by the commissioners, the company would pay a $300 million penalty and appoint an independent examiner to review online advertising deals and other transactions between 1999 and 2002, Time Warner said in a written statement.
Under the terms of the agreements, Time Warner also would pay $60 million in fines to the Justice Department, and put $150 million more into a civil litigation fund for shareholders. That same fund also would be used to cover various government expenses from the investigations.
Sources familiar with the negotiations between the company and the government said last month that the settlement might be for as much as $750 million, but in the end, the total was closer to the $500 million Time Warner has already set aside in reserve.
An agreement with the SEC would free Time Warner to once again issue stock and bonds to make acquisitions. Parsons has said the company's top priorities are to buy cable television properties and find other ways to increase value for shareholders.
"We are pleased to have made progress toward resolving the government investigations of the company. We will continue to work with the SEC staff to finalize our proposed agreement, and we are committed to fulfilling our obligations to the government," Time Warner corporate spokesman Edward I. Adler said.
Time Warner lawyers sought language in the settlement agreement that would minimize the cost of resolving lawsuits filed by shareholders of AOL and Time Warner.