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Government Investigates AOL Time Warner Accounting

Chief Executive Richard Parsons said the probe began in response to a series of articles in “The Washington Post” that suggested unconventional transactions may have inflated revenues over a two-year period ending in March.

“After the [‘Post’] articles came out, the SEC informed us that they are conducting a fact-finding inquiry,” Parsons said in a conference call with Wall Street analysts and reporters.

The “Post” articles investigated revenue reports during the crucial period before America Online used its high-priced stock to buy Time Warner, a media giant with four times AOL’s revenue.

Citing former executives as well as company documents and e-mail messages, the “Post” reported AOL may have used questionable accounting transactions to inflate online advertising fees and sales as pressure mounted to meet revenue projections.

Responding to the “Post” stories, AOL officials said the examples cited represented less that 2 percent of the company’s revenue and did not break any laws. Officials also noted that AOL’s outside auditor, Ernst and Young, reviewed and certified its books both at the time the results were reported and in response to the recent allegations.

Parsons said the company would fully cooperate with the SEC investigation and that investor trust was “fundamental” to the company’s future.

AOL Time Warner’s second-quarter financial results exceeded analysts’ expectations by reporting a 10 percent gain in revenue coming primarily from its media divisions. The performance of the online division remains shaky, a fact the company has taken great steps to correct in the eyes of investors.

Last week, Robert Pittman announced his resignation as chief operating officer and was replaced by Don Logan, a long-time Time Warner executive. The company’s online division was made part of a media unit that includes Time Inc., Time Warner Cable and the AOL Time Warner Book Group, moving the Time Warner division to the top of the corporate structure.

Meanwhile, the company’s stock price on Wall Street stumbled to some of its lowest levels in four years, falling $2.60, or nearly 23 percent, to $8.80 in mid-day trading.

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