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Feds Probing AOL Time Warner Books

Jul 31, 2002 | AP

The Justice Department is investigating accounting practices at AOL Time Warner Inc., the company confirmed Wednesday. The media giant already is being investigated by the Securities and Exchange Commission.

The company did not specify which practices were being looked at, but the SEC probe is focusing on several transactions that led to higher revenues at the AOL side of the company. Those transactions were originally reported in The Washington Post.

The company released a short statement saying it was cooperating with the Justice Department as well as with the SEC, and that it stood by its accounting practices, which have been upheld by its auditor Ernst & Young.

"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 the statement.

Company spokeswoman Tricia Primrose declined to elaborate beyond the statement.

The probe from the Justice Department comes at an especially difficult time for AOL Time Warner. The world's largest media company is in the midst of management turmoil and earlier this month ousted its No. 2 executive, former America Online chief Robert Pittman.

Pittman was in charge of America Online as it grew into the nation's largest Internet company, and it is that period that investigators are focusing on. The series of articles in The Washington Post described what the newspaper called "unconventional" ways of increasing revenues at America Online.

The practices included selling ads to a British entertainment company in lieu of taking a cash settlement in a legal dispute and booking sales from ads that were sold on behalf of eBay. The transactions occurred between July 2000 and March 2002.

The company has repeatedly stood by the transactions, and analysts say its still unclear whether the accounting was improper. Nonetheless, concerns that the company could come under fire from regulators has caused an even further erosion in AOL Time Warner's already battered stock price.

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