"Colburn contends that the allegations regarding the Veritas transaction are insufficient because there are no allegations that Colburn 'either withheld the details of the deal from the Company's accountants, or participated in decisions concerning the accounting for the transaction.' Colburn misses the point. It is the very structure of the deal, not what Colburn did or did not tell the AOL accountants, that matters," the opinion said.
"If in fact Colburn engineered a separate transaction to make it appear that AOL was receiving $20 million in advertising revenue, when in actuality it was giving itself its own money, then Colburn has acted fraudulently."
The judge wrote that Keller allegedly was involved in more than a dozen sham transactions to improperly boost AOL's ad revenue through "round-trip" deals with online firms Homestore Inc. and PurchasePro.com Inc. Keller had asked that allegations against him be dismissed because he made no false statements in connection with stock sales. He was placed on administrative leave in June 2001.
"The Court agrees with Keller that there are no false or misleading statements in the Amended Complaint attributable to him," the opinion said. "The lack of false statements notwithstanding, Keller's alleged involvement in numerous allegedly fraudulent acts is undeniable."
The judge also denied motions by former chief financial officer J. Michael Kelly, and current Time Warner Chief Financial Officer Wayne H. Pace, to throw out securities fraud claims against them.
She wrote that in the fall of 2000, Kelly made public statements about the strength of AOL's business that contradicted information he allegedly had about the deteriorating state of the Dulles-based Internet firm's advertising.
"As a member of the Operating Committee and as the executive most responsible for the Company's accounting, it can certainly be inferred Kelly knew of the Company's emerging advertising issues; yet, his public statements conveyed no such concern -- in fact, just the opposite," the opinion said.
The plaintiffs alleged that in a conference call with Wall Street analysts in July 2002, Pace allegedly overstated advertising and commerce revenue by $126 million. "Pace 'knew facts or had access to information suggesting that [his] public statements were not accurate,' " the opinion said.
The judge wrote that the Securities and Exchange Commission and the Justice Department launched probes into the AOL-Time Warner matter following publication of stories in The Washington Post in July 2002 about various alleged sham transactions that boosted AOL's revenue. Those investigations are continuing.
In the fall of 2002, Time Warner restated $190 million in revenue from a handful of AOL deals in the 2000-02 period. The SEC is planning to notify Time Warner of the range of civil charges it may face in the near future, including allegations involving more than $400 million in questionable revenue booked after the merger. The company has said there may be further restatements if it learns new facts about the federal probes.