Media-entertainment giant Time Warner has agreed to pay $300m to settle charges that its America Online division fraudulently overstated ad revenues and Internet subscribers from 2000 to 2002, regulators said today.
The Securities and Exchange Commission said the settlement was reached on the charges of inflating its subscriber numbers and financial results and noted that the company would restate its results from the period affected.
The investigation put the spotlight on the accounting practices used for online advertising and the counting of subscribers at AOL, which saw its value soar enough to become the acquirer of traditional media giant Time Warner in 2000.
SEC officials said that following the merger, AOL Time Warner continued to use dodgy accounting, ignoring an order from regulators.
'Our complaint against AOL Time Warner details a wide array of wrongdoing, including fraudulent round-trip transactions to inflate online advertising revenues, fraudulent inflation of AOL subscriber numbers, misapplication of accounting principles relating to AOL Europe, and participation in frauds against the shareholders of three other companies,' the SEC said.
'Some of the misconduct occurred while the ink on a prior commission cease-and-desist order was barely dry. Such an institutional failure calls for strong sanctions', it added.
As part of the settlement, Time Warner agreed to restate its financial results to reduce its online advertising revenues by some $500m in addition to the $190m already restated for the fourth quarter of 2000 through 2002.
The company also agreed to engage an independent examiner to determine whether the company's historical accounting for certain transactions was in conformity with generally accepted accounting principles.
The SEC also charged Time Warner chief financial officer Wayne Pace, controller James Barge and deputy controller Pascal Desroches with causing violations of the reporting provisions of the federal securities laws.
