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Time Warner, SEC Settle AOL Fraud Charges

By Carrie Johnson
Washington Post Staff Writer
Tuesday, March 22, 2005; Page E01

Time Warner Inc. yesterday 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 dealmaking activities at Dulles-based America Online Inc. before and after its January 2001 merger with Time Warner.

_____Background_____
Time Warner Settles AOL Cases For $510 Million (The Washington Post, Dec 16, 2004)
_____AOL Series_____
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)
_____On the Web_____
SEC Announcement
Time Warner Press Release
_____Post 200 Profile_____
Time Warner Inc.
_____Time Warner News_____
Ex-AOL Executive Guilty Of Fraud (The Washington Post, Apr 8, 2005)
AOL to Introduce Internet Phone Service (The Washington Post, Apr 7, 2005)
Case Seeks Health Care Revolution (The Washington Post, Apr 5, 2005)
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_____Time Warner_____
Stock Quote and News
Historical Chart
Company Description
Analyst Ratings
Timeline: Time Warner Highlights
Company Downsizing Actions
_____Interactive Primer_____
Understanding Regulatory Policy
_____Related SEC Articles_____
Kerkorian's Claim Rejected (The Washington Post, Apr 8, 2005)
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Insurance Product Can Disguise a Loan (The Washington Post, Apr 1, 2005)
More SEC News

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., Homestore 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.


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