Settlement Reached in AOL Fraud Scandal

Dec 15, 2004  •  Post A Comment

Time Warner said Wednesday it will pay the U.S. Department of Justice $210 million to settle fraud charges related to an accounting scandal at its America Online unit. The company has proposed paying the Securities and Exchange Commission another $300 million to resolve the matter with that agency.

As part of the Justice Department settlement, the agency will file criminal charges against the company for securities fraud but will hold off on prosecuting the case for two years, provided the company fulfills obligations under the settlement. If Time Warner meets those conditions, the Justice Department said, it will dismiss the charges.

Time Warner must retain an independent monitor who will review AOL’s internal controls, including those related to how the unit accounts for advertising revenue. The company also is required to cooperate with the Justice Department in any investigation related to the transactions covered by the settlement and must accept responsibility for the conduct of certain AOL employees involved in the rogue transactions.

Of the $210 million going to the Justice Department, $60 million will be used to pay federal fines, while the other $150 million will go into a fund to pay settlements of any civil lawsuits or federal government actions levied against the company.

Time Warner also proposed paying $300 million to settle with the Securities and Exchange Commission, restating its financials for 2001 and 2002 and hiring an independent examiner who would review a number of transactions entered into by AOL between 1999 and 2002.

At issue is how Time Warner’s AOL unit accounted for a $400 million payment from Bertelsmann AG, the German media company and whether the payment was used to artificially boost AOL’s profits.

The company in November indicated the federal probe might have been nearing its end when it set aside $500 million in a fund to be used to pay for settlements related to the SEC and Justice Department probes.