Time Warner yesterday agreed to pay securities regulators $300 million to settle long-running civil-fraud charges related to online-advertising...
WASHINGTON — Time Warner yesterday agreed to pay securities regulators $300 million to settle long-running civil-fraud charges related to online-advertising deals that helped it artificially inflate revenue.
The settlement closes another chapter in a federal investigation of more than two years into the accounting practices and deal-making at America Online before and after its January 2001 merger with Time Warner.
Time Warner said it had restated financial results for 2000 to 2002 by about $500 million to correct its accounting for deals under scrutiny by the Securities and Exchange Commission (SEC).
The company did not admit or deny wrongdoing as part of the settlement.
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The SEC also settled with the company’s finance chief, controller and deputy controller, who stood accused of causing false financial reports to be filed in $400 million worth of transactions that Time Warner negotiated with German media company Bertelsmann.
The three men, who were responsible for approving corporate accounting practices, received false information from unnamed insiders and “failed to pursue facts and circumstances” that would have thrown into question the payments in 2000 and 2001, according to court papers.
Chief Financial Officer Wayne Pace, Controller James Barge and Deputy Controller Pascal Desroches are not required to pay fines or face other sanctions as part of yesterday’s settlement.
The three men, who did not admit or deny wrongdoing, remain employed at Time Warner, company officials said. Their defense lawyers declined to comment.
SEC enforcement chief Stephen Cutler said the charges in the 29-page complaint detail “a wide array of wrongdoing” at the world’s biggest media company, including schemes to inflate advertising revenue and subscriber numbers.
Time Warner also helped PurchasePro.com, Homestore and an unidentified California software company commit securities fraud by engaging in ad deals that allowed the firms to artificially boost revenue, the SEC said.
Cutler noted that Time Warner’s AOL unit had been operating under a May 2000 order to cease and desist from fraudulent activity at the time some of the improper conduct took place.
In that 2000 order, AOL agreed to pay $3.5 million to settle charges that it had improperly tamped down expenses for acquiring new subscribers by capitalizing them over time.
In a prepared statement, Time Warner Chairman and Chief Executive Richard Parsons said he was pleased to have resolved the SEC case.
In an e-mail to employees, Parsons wrote of the settlement, “Now that this chapter is closed, we can look forward to putting all of our energies behind delivering sustained, superior growth to our stockholders.”
As part of the SEC settlement, Time Warner agreed to open its books to an independent examiner, who will review accounting practices for deals the company brokered with 17 other companies from June 2000 to December 2001. Further restatements may be needed after that review, Time Warner has said.
The company said it could not deduct the $300 million civil fine for tax purposes or to cover settlements of related shareholder lawsuits. Time Warner faces 30 class-action lawsuits.
Time Warner had outlined the terms of the SEC settlement in December, when it resolved a related criminal case filed by the Justice Department by agreeing to pay $60 million in penalties and $150 million to create a fund for shareholders. It could be subject to criminal prosecution if it violates the terms of the Justice Department deal in the future.
Securities regulators and prosecutors said they continue to investigate individuals who might have participated in the fraud.
Time Warner stock closed at $18.42 yesterday, down 28 cents, or 1.5 percent.