TOPICS > Politics

Justice Dept. Launches Inquiry Into AOL Time Warner

BY Admin  July 31, 2002 at 6:00 PM EDT

The inquiry is focusing on accounts in the struggling America Online division, according to a statement the company released today.

“In the current environment, when anyone raises a question about accounting, it’s not surprising that the relevant government agencies will want to look into the facts,” the company said in its written statement.

“As we said last week, we are cooperating 100 percent with the SEC, and we will cooperate with the Department of Justice as well.”

The company’s statement did not disclose whether the Justice Department’s inquiry is a criminal or civil probe. The Justice Department conducts both types of investigations, and either can result in criminal charges.

The Justice Department’s announcement comes days after AOL Time Warner disclosed the SEC had opened a fact-finding inquiry into the troubled media conglomerate. The SEC is looking into accounting practices at the America Online division during 2000 and 2001, and investigating the possibility that the company inflated revenue during that period.

The probe is a result of “Washington Post? reporting which raised concerns about the world’s largest media company and their auditor Ernst & Young. The newspaper raised questions about AOL’s methods of bolstering revenue.

Both AOL Time Warner and Ernst & Young have repeatedly said they stand by the legitimacy of their accounting practices.

The announcement further damaged AOL Time Warner’s share price, which fell more than 9 percent to $11.20 on the New York Stock Exchange Wednesday, an amount close to four-year lows.

The inquiry comes as AOL Time Warner is in the midst of management upheaval. Earlier this month, the company ousted No. 2 executive Robert Pittman. Pittman headed America Online as it flourished into the largest Internet company in the United States ? the time period the inquiry focuses on.

Although the transactions under suspicion involve only $270 million out of the company’s $38 billion in 2001 revenues, the investigation comes during a period of increased investor concern as corporate accounting scandals at other companies continue to unfold.