Settlement of 2 Time Warner cases near

SEC, Justice Department probed AOL activities

December 15, 2004|By NEW YORK TIMES NEWS SERVICE

Time Warner Inc. is expected to announce that it has reached a settlement with the Justice Department in its investigation of advertising transactions between America Online Inc. and smaller Internet companies that allowed America Online to exaggerate its growth. The announcement could come as early as today.

The company might also announce that it has reached a tentative agreement with the enforcement division staff of the Securities and Exchange Commission, which is conducting a separate investigation into accounting irregularities at America Online, according to an official close to the case. Time Warner could pay between $500 million and $600 million to settle all civil and criminal charges with the two agencies.

Bid for Adelphia

Time Warner is expected to neither admit nor deny wrongdoing, according to the official. A Time Warner spokesman declined to comment.

Time Warner has been pushing to conclude the two investigations before the end of the year, in part to put the troubled America Online merger behind it and in part because it has an interest in joining with Comcast Corp. to bid for part or all of Adelphia Communications Corp., the bankrupt cable company.

For two years, the Justice Department and SEC cases have tied up Time Warner's management and its ability to finance deals. The company disclosed in SEC filings that it has been unable to issue stock or borrow funds through the debt markets while the SEC is questioning the reliability of its audited financial statements.

Wall Street and investors, eager to see the last issues of the ill-fated merger put behind the media giant, are likely to respond favorably. At issue with the SEC is the way Time Warner characterized a $400 million payment that AOL received from Bertelsmann AG, the German media company, which formerly owned half of AOL Europe. The question has been whether the payment was used improperly as part of an effort to inflate the sales and profits of America Online.

Earnings boost

The SEC settlement has been widely expected, but resolution of the Justice Department investigation comes as a surprise.

Justice officials has been probing whether America Online helped smaller Internet companies artificially boost their earnings by, in essence, giving them the funds to purchase ads on AOL, which in turn helped America Online's finances appear healthier than they were.

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