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AOL Settlement Includes Tight Controls

By David A. Vise
Washington Post Staff Writer
Friday, December 17, 2004; Page E05

America Online Inc.'s settlement with the Justice Department imposes a strict new set of controls on the company, including requirements that the Internet giant hire a corporate monitor and disclose serious wrongdoing discovered internally to the government.

The deal -- announced Wednesday and signed by federal prosecutors and America Online chief executive Jonathan F. Miller -- comes as authorities seek to strengthen corporate checks and balances following scandals at Enron Corp., WorldCom Inc. and other firms.

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The AOL settlement requires the Dulles-based company to give the Justice Department every letter it receives threatening private litigation against AOL. The agreement also makes the Justice Department a party to normally private communications between AOL and its parent company, media giant Time Warner Inc.

"AOL will adopt a new internal standard of conduct under which it will inform the Department of Justice of any new matter reported to Time Warner's Audit and Finance Committee that involves substantial and credible evidence of any Federal Crimes," the cooperation agreement states.

AOL also agreed to hire and pay for an independent monitor for at least two years. The selection must be approved by Justice, and the monitor will report to prosecutors regularly on the firm's business conduct. The monitor has the power to hire accounting firms to assist in the work and must be given access to all details of AOL's online advertising deals.

The company could be subject to criminal prosecution if it fails to live up to the terms of the agreement. Justice officials filed a criminal complaint against America Online but agreed to defer prosecution for two years and to dismiss the complaint at the end of that period if the company cooperates fully with authorities.

However, AOL could be prosecuted as a corporate entity if it commits various crimes in the future. As part of the settlement, the firm waived its right to assert that the statute of limitations had expired.

On Wednesday, Time Warner and AOL agreed to pay the federal government $510 million to settle criminal and civil charges following a long-running probe of questionable accounting and dealmaking that inflated AOL's revenue and profit before and after the company merged with Time Warner. The agreements have been approved by Justice and the enforcement division of the Securities and Exchange Commission, but the proposed SEC agreement still must be reviewed by the commissioners of the agency, who have the right to alter, amend or reject the proposed settlement.

AOL also agreed to assist Justice fully in the criminal prosecution of "six or more" current and former AOL employees involved in alleged accounting fraud committed between AOL and PurchasePro.com Inc., a defunct Las Vegas software firm. The agreement states that AOL and PurchasePro engaged in a multiyear scheme of accounting fraud and deceptive dealmaking that enabled both companies to exaggerate the real revenue they were taking in by millions of dollars.

The agreement does not list the names of the six individuals at AOL but states that they worked in AOL's business affairs unit, which took the lead on advertising deals; in the interactive marketing unit; and elsewhere. Former AOL employees David M. Colburn and Eric Keller, who worked in business affairs, are among the former AOL employees under scrutiny, said people familiar with the probe who spoke on condition of anonymity because of the ongoing investigation. Attorneys for both men have said they engaged in no wrongdoing.

Four former PurchasePro executives agreed on Wednesday to plead guilty to criminal charges in the probe and to cooperate in the government's investigation. They are Robert Geoffrey Layne, former executive vice president and a co-founder; Shawn P. McGhee, the company's former chief operating officer; Dale L. Boeth, a former senior vice president; and James S. Sholeff, a former vice president.

Under the cooperation agreement signed by Miller, AOL agreed not to challenge Justice's conclusions about the alleged criminal nature of the scheme between the companies or the criminal culpability of some AOL officials. Miller also agreed that AOL will actively assist Justice in the prosecution.

Among other things, Miller agreed that AOL officials with knowledge of the wrongdoing will testify before a federal grand jury about current and former America Online officials who participated in the fraudulent deals and, if necessary, testify at trial.

The Department of Justice's "decision to defer and ultimately not seek criminal sanctions against AOL is contingent on AOL's adherence to a number of conditions," Miller wrote in an e-mail to employees. "We take this matter very seriously and expect you to do the same. As a company, living up to the conditions imposed by the DOJ must and will be a clear priority."

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