Time Warner Closes SEC Deal
Time Warner
(TWX)
finalized its settlement with the
Securities and Exchange Commission
over charges that the company's America Online unit overstated revenue and subscriber data.
The agreement comes more than three months after the New York media company
agreed in principle to settle the SEC charges. At the time, Time Warner also settled with the Justice Department in a parallel inquiry into AOL's bubble-era accounting and business practices.
In the SEC deal, Time Warner adjusted its accounting for ad deals with Bertelsmann, and for transactions with two other AOL customers. The adjustments resulted in a $500 million reduction in revenue as restated over several years, on top of a $190 million reduction the company had already taken.
Time Warner also agreed to adjust its accounting for the investment in and consolidation of AOL Europe, and to name an independent examiner who will review the historical accounting of some transactions entered into between 1999 and 2002. Time Warner has said the review could result in further restatements. Time Warner and AOL merged in 2001.
"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," SEC enforcement director Steve Cutler said. "Some of the misconduct occurred while the ink on a prior Commission cease-and-desist order was barely dry. Such an institutional failure calls for strong sanctions."
The settlements cost Time Warner $510 million, with $300 million of that coming in a civil penalty that the SEC will seek to distribute to investors.
News of the settlements caps off long-running investigations of onetime accounting and disclosure practices at America Online. In early November, Time Warner said it was taking a $500 million reserve related to ongoing government investigations.
Investors have been hoping that settling charges with regulators could erase a major uncertainty hanging over the company. Time Warner has indicated that it would be unlikely to carry out, for example, an initial public offering of stock in its cable TV subsidiary in the absence of an SEC settlement.
Time Warner slipped 37 cents Monday to $18.33.