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TIME WARNER TO PAY $300 MILLION SEC SETTLEMENT

Feds Cite Stockholder Fraud; Time Warner Admits No Wrongdoing

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WASHINGTON (AdAge.com) -- The Securities and Exchange Commission today made official a $300 million settlement agreement with Time Warner, resolving charges that the media giant's America Online unit misstated advertising revenue.
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Previous settlement
The settlement is similar to one announced late last year to resolve an investigation of the company that had accused America Online of "aiding and abetting" securities fraud in its handling of an ad contract. That settlement amounted to $210 million.

As part of the new settlement, Time Warner didn’t admit or deny wrongdoing, but agreed to be enjoined from future violations of certain provisions of the securities laws and to comply with a prior SEC cease-and-desist order issued to AOL in May 2000.

Frauds against stockholders
"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's director of enforcement, Stephen M. Cutler, said in a statement.

"We're pleased to have resolved the SEC's investigation of the Company,” said Time Warner's chairman-CEO, Richard Parsons.

30 class-action lawsuits
Time Warner is also still defending itself in 30 class-action lawsuits brought against the company asserting that the company overstated ad revenue at America Online and that it failed to disclose a decline in those revenues.

According to the SEC, Time Warner and predecessor AOL Time Warner from 2000 to 2002 employed fraudulent roundtrip transactions that boosted online ad revenue to mask a business slow-down; aided and abetted fraud at other companies by wrongly reporting their transactions; artificially inflated the number of AOL subscribers in the second, third, and fourth quarters of 2001 so it could report it had met its new subscriber targets; and from March 2000 through January 2002 failed to properly consolidate the financial results of AOL Europe in its financial statements.

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