Time Warner Inc. reached a $210 million settlement with the Justice Department to end a probe into whether its America Online unit improperly booked ad sales, and proposed a $300 million settlement with the Securities and Exchange Commission to end an investigation into accounting irregularities at AOL.
At press time, the company said that it was awaiting approval of its proposed settlement by the SEC, subject to agreement on appropriate documentation.
Both probes involve Time Warner's accounting and disclosure practices, with a focus on transactions involving its AOL segment entered into after July 1, 1999, including advertising arrangements, the methods used by AOL to report its subscriber numbers, and the accounting related to America Online's interest in AOL Europe prior to January 2002.
Last month, the company set aside $500 million to cover the cost of settling the government investigations, and said that it would restate its accounting for its interests in AOL Europe prior to 2002.
Under the terms of the DoJ settlement, the Justice Department will defer prosecution on charges of aiding and abetting securities fraud committed by PurcashePro.com -- a defunct company that did business with Time Warner -- for two years, at which point it will dismiss the charges as long as the company has met its obligations under the agreement.
The media giant agreed to pay $210 million on Wednesday -- a $60 million criminal fine and about $150 million to go into a compensation fund to settle any civil lawsuits or other actions arising from the alleged fraud. It also agreed to accept responsibility for the conduct of certain AOL employees with respect to the PurchasePro transactions, to cooperate with the government regarding the transactions covered by the settlement, and to hire an independent monitor to review the effectiveness of AOL's internal controls.
Under the proposed SEC settlement, the company would, without admitting or denying any wrongdoing, pay a $300 million civil penalty; adjust its accounting for $400 million in ad revenues recognized in transactions with Bertelsmann AG and for transactions with two other AOL customers that resulted in some $30 million of advertising revenue in 2001. It would also agree to the appointment of an independent examiner to review its accounting for certain transactions entered into between 1999 and 2002, involving online ad revenue.
The company said that its chief financial officer, controller and deputy controller also proposed settlements to the SEC. Under the proposed settlements -- which relate to accounting and disclosure of the company's transactions with Bertelsmann -- the three officers would, without admitting or denying the allegations, agree to cease and desist violating securities laws. The company said that the proposed agreements wouldn't result in any suspension, bar or penalties, and that the officers will continue to work for the company in their current capacities.
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