Time Warner Inc. has agreed to pay $210 million to settle securities fraud charges involving the company's America Online unit, law enforcement officials said today.
WASHINGTON Time Warner Inc. has agreed to pay $210 million to settle securities fraud charges involving the company’s America Online unit, law enforcement officials said today.
Under terms of the settlement with the Justice Department, prosecution on charges of aiding and abetting securities fraud will be deferred provided that AOL and Time Warner cooperate in an ongoing investigation into whether AOL improperly helped smaller Internet companies artificially inflate their earnings.
An independent monitor will be chosen to oversee AOL’s compliance and the company must agree to a number of changes in its internal practices, said a Justice Department official who briefed reporters on condition of anonymity.
Although no Time Warner or America Online executives have been charged with wrongdoing, the Justice Department agreement does not provide them with immunity, the official said.
Meantime, Time Warner is also expected today to propose a $300 million settlement with the Securities and Exchange Commission, according to a person familiar with the negotiations who also spoke on condition of anonymity. The SEC would still have to approve that settlement.
The SEC has been investigating accounting irregularities at AOL, focused on the manner that Time Warner accounted for a $400 million payment from the German media company Bertelsmann AG and whether that was used to inflate America Online profits.
Last month, Time Warner set aside $500 million to cover the cost of settling the SEC and Justice Department investigations.
Of the $210 million called for in the Justice Department settlement, $60 million will go to the federal government in fines and about $150 million will go into a compensation fund to pay for settlements of civil lawsuits or other government actions arising from the alleged fraud.
The criminal case has already resulted in guilty pleas from executives at two companies: now-defunct Purchasepro.com of Las Vegas and Homestore Inc. of Westlake Village, Calif.
Court documents in the Purchasepro case say that AOL received inflated amounts of Purchasepro stock in 2000 for referring business to the smaller company. In return, AOL agreed to reward Purchasepro with revenue allowing it to falsely inflate its earnings in the future for its Internet product, a “marketplace license” that gave other businesses access to special online deals.
Time Wraner shares were up 27 cents, or 1.4 percent, at $19.65 in afternoon trading on the New York Stock Exchange. That would top its previous 52-week closing high of $19.56.