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Time Warner Settles AOL Cases For $510 Million

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 SEC's chief accountant has accused both Time Warner and AOL of improperly counting $400 million from German media giant Bertelsmann AG as AOL ad revenue when some of the money reflected payments for other purposes. Without admitting or denying wrongdoing, Time Warner agreed to adopt the SEC's suggestion for accounting for the transactions. Time Warner also agreed to restate a $30 million from two other advertising deals involving AOL and its customers.

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.
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Time Warner Inc.
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AOL Settlement Includes Tight Controls (The Washington Post, Dec 17, 2004)
Players in Dazzling Deal Moved Into New Ventures (The Washington Post, Dec 16, 2004)
Time Warner Closes AOL Chapter (The Washington Post, Dec 16, 2004)
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Part I: Unconventional Transactions Boosted Sales (July 18, 2002)
Part II: Creative Transactions Earned Team Rewards (July 19, 2002)
Sidebar: Unorthodox Partnership Produced Financial Gains (July 19, 2002)

Further restatements may be required, depending on the outcome of an independent review to be conducted of "a limited number" of AOL advertising deals from 1999 to 2002, the company said in a filing with the SEC.

Also, Time Warner's chief financial officer, Wayne H. Pace, and two other Time Warner finance executives involved in the Bertelsmann accounting would be subject to administrative proceedings under the proposed SEC settlement.

Pace and the others would neither admit nor deny wrongdoing under the proposal, and would continue to work for Time Warner in their current jobs.

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.

Jonathan F. Miller, chief executive of the America Online unit, took solace in the fact that the company survived the long-running investigation, which some had predicted would bring about its demise, particularly given its underlying business troubles.

Miller said he thought the settlement would effectively resolve the criminal investigation of AOL.

"We will work with the independent monitor appointed as part of our agreement with the Department of Justice," Miller wrote to AOL employees. "In short, we will do what it takes to make sure that AOL puts this matter behind us with contrition and resolve."

Staff writer Mike Musgrove contributed to this report.

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