Just An Online Minute... Time Warner Settlement

by Tobi Elkin, Mar 22, 2005, 12:45 PM

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One of the ugliest and most twisted chapters in the business of online media ended yesterday with the news that Time Warner agreed to settle a probe pertaining to allegations of improper accounting at its America Online unit for $300 million.

The settlement, which came after more than two years of investigation and legal wrangling, pertains to charges that Time Warner overstated online advertising revenues and inflated subscriber numbers. But wait a minute, Time Warner hasn't admitted or denied any wrongdoing.

According to the Securities and Exchange Commission, Time Warner and AOL Time Warner (its predecessor), inflated online ad revenues, improperly reported online ad transactions, and overstated the number of America Online subscribers in the second, third, and fourth quarters of 2001. Further, the SEC charged that AOL failed to properly account for AOL Europe's financials.

Under the terms of the settlement, Time Warner agreed to comply with a SEC cease and desist order directed at AOL in May 2000. Time Warner said it would restate financial results by lowering previously reported online ad revenues by nearly $500 million for the fourth quarter of 2000 through 2002. The company has already restated $190 million in revenue at its AOL unit. And last December, Time Warner agreed to pay $210 million to settle criminal charges stemming from allegations that AOL fraudulently inflated revenues; it agreed to fork over $300 million to settle SEC claims.

Time Warner already restated financial results for the periods ending Dec. 31, 2000 through Dec. 31, 2003. The company filed the restated results with the SEC on March 11. But once again, just for the record, as part of the settlement Time Warner didn't admit or deny wrongdoing. In fact, a few of the individuals on whose watch the improprieties occurred are still working for Time Warner. The company's chief financial officer Wayne Pace, Controller James Barge, and Deputy Controller Pascal Desroches settled SEC claims that they caused the reporting violations. All agreed to cease-and-desist orders and the settlement terms; none of the men admitted to wrongdoing or denied it.

Meanwhile, Time Warner Chief Executive Officer Richard Parsons commented: "We have confidence in our top financial officers, and we're pleased that they will continue to serve our company in their current positions."

We hope Time Warner shareholders will be pleased as well. The company faces more than 40 shareholder lawsuits.

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