Policy

SEC OKs Time Warner’s AOL Settlement

3/21/2005 4:43 AM Eastern

The Securities and Exchange Commission said Monday that it has approved a $300 million settlement deal with Time Warner Inc. regarding accounting irregularities at its America Online Inc. unit dating back to 2000.

Time Warner had announced the settlement deal back in December.

According to the SEC, Time Warner will pay the fine -- which will be distributed to harmed investors -- and the company agreed to restate revenue at AOL by about $500 million for the years 2000-02, which it already made in its most recent 10-K.

Time Warner neither admitted nor denied wrongdoing as part of the settlement.

Time Warner came under scrutiny in 2003 after the SEC began probing the media giant’s purchase of Bertelsmann AG’s interest in AOL Europe. The crux of the investigation centered on $400 million in advertising revenue that was booked to Bertelsmann but was essentially a discount to the purchase price.

The SEC also alleged that AOL inflated its subscriber base by counting bulk-subscription sales to corporate customers as new subscribers although it knew that most of those accounts would not be activated.

In a separate press release, Time Warner said it has also agreed to hire an independent examiner to review whether its historical accounting for transactions with 17 counterparties identified by SEC staff -- including three cable-programming-affiliation agreements with related advertising elements -- were in compliance with generally accepted accounting principals. The independent examiner will provide a report to Time Warner’s audit and finance committee within 180 days.

According to Time Warner, the transactions being reviewed were entered into between June 1, 2000-Dec. 31 2001.

“We’re pleased to have resolved the SEC’s investigation of the company, based on the proposed settlement announced late last year,” Time Warner chairman Richard Parsons said in a prepared statement. “We’re committed to cooperating with the independent examiner, as well as fulfilling all of our other obligations under the settlement.”

In a separate administrative action, Time Warner chief financial officer Wayne Pace, controller James Barge and deputy controller Pascal Desrochesconsented, without admitting or denying the allegations, to the entry of an SEC cease-and-desist order that finds that they caused reporting violations by the company based on their roles in accounting for $400 million paid to the company by Bertelsmann AG in two sets of transactions.

“We have confidence in our top financial officers, and we’re pleased that they will continue to serve our company in their current positions,” Parsons said in the statement.

Time Warner shares were down 33 cents each to $18.37 per share in early trading Monday.

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