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Judge Orders Ex-AOL Chief To Answer Civil Charges

Reversal Comes After Complaint is Amended

By David A. Vise
Washington Post Staff Writer
Thursday, August 12, 2004; Page E05

A federal judge in New York ruled yesterday that former America Online chairman Steve Case must defend himself against civil allegations that he knowingly misrepresented the Internet firm's advertising revenue prior to its ill-fated merger with Time Warner Inc. in January 2000.

The decision by U.S. District Judge Shirley Wohl Kram reverses a ruling she made in May, when she found insufficient basis for claims that Case had intentionally tried to mislead investors in order to boost his company's stock price. The judge changed her mind after the lead shareholder plaintiff in the case, the Minnesota State Board of Investment, filed an amended complaint containing new details.


Former America Online chairman Steve Case is accused of misrepresenting advertising revenue. (2000 Photo Bryan S. Berteaux -- AP)

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The opinion said: "According to the second amended complaint, on October 17, 2000, Case said, 'I do not think people generally are concerned about Internet advertising. Our results show that there's no reason to be concerned when it comes to AOL.' In light of Case's alleged knowledge as early as November 1999 that the advertising revenue was facing a 'stark reversal of fortune,' the above statement may form the basis of a [securities fraud] claim against Case."

In court filings, Case has denied any wrongdoing, saying he made no false statements and had no advance knowledge of the firm's impending ad woes.

As part of her ruling, Kram also reinstated civil claims against Joseph A. Ripp, who served as AOL's chief financial officer, and Gerald M. Levin, the former chief executive of what was then known as AOL Time Warner (the company has since renamed itself). Both have denied wrongdoing. Kram declined to reinstate civil claims against Richard D. Parsons, the current chairman of Time Warner.

The judge cited the amended suit's allegations that Levin once portrayed concerns over the health of AOL's ad sales as "a kind of nervous Nellie manufactured issue" in reinstating the civil allegations against him. Kram rejected Levin's contention that he could not have known AOL's true financial condition because he was not privy to AOL's internal financial documents, saying that if that were the case, he might have acted recklessly by offering an "unqualified and uninformed" opinion about AOL's financial condition.

Investors lost hundreds of billions of dollars after AOL and Time Warner merged and the combined company's stock declined. The class-action lawsuit is an attempt to recover funds and damages from current and former senior executives and the surviving corporation.


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