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AOL Time Warner Sued Over Homestore Deals

Nov 18, 2002 | FT.COM AOL Time Warner is being sued by one of the largest pension funds in the US over the media group's role in an alleged $193m accounting fraud at Homestore.com, the online real estate listings company.

According to the lawsuit, which was filed late last week by the California State Teachers' Retirement System, executives at AOL's America Online internet division played a central role in devising sham advertising deals that artificially boosted Homestore's revenues.

The detailed suit, which also names Homestore.com's auditing firm PwC, the services group Cendant and a string of smaller companies as defendants, casts a light on the lengths to which some internet companies allegedly went to create the semblance of revenue growth during the market boom of the late 1990s.

The Securities and Exchange Commission and the Department of Justice are examining possible accounting irregularities at America Online, which announced its merger with Time Warner in January 2000 and completed the deal a year later. Last month the company reduced its reported revenues by $200m over a two-year period starting in September 2000.

The complaint names David Colburn, AOL's executive vice president and the manager responsible for complex advertising deals, and Eric Keller, previously a senior vice-president at AOL, as defendants.

Mr Colburn left AOL earlier this year after the accounting irregularities were discovered, while Mr Keller left the company in 2001.

According to the complaint, Homestore.com executives entered into transactions whereby the company paid cash or stock to companies, including AOL, which then paid the same amount to Homestore, allowing the company to book the trade as revenue.

The lawsuit also alleges that Mr Keller and Homestore.com executives devised intricate three-way deals to hide their actions from auditors.

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