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Justice Investigates AOL Accounting

Jul 31, 2002 | USA Today

The Justice Department has opened an investigation into accounting practices at AOL Time Warner, the company said Wednesday.

Overnight, USA TODAY reported that U.S. prosecutors in Virginia, where the company's America Online division is headquartered, are working in tandem with the Securities and Exchange Commission.

Last week, AOL Time Warner disclosed that the SEC is looking into certain transactions at the company's Internet division. CEO Richard Parsons said his company is cooperating with the SEC.

An AOL spokesman said the company is "not under any subpoena from the Justice Department."

The company also says, in a prepared statement Tuesday, that "if the Justice Department wants to look at the facts, of course we will cooperate with them too, as we would with any other appropriate government agency."

The Justice Department does not comment on investigations.

The new investigation could prove to be distracting for AOL. SEC investigators handle civil violations of securities law and can only issue subpoenas with the approval of the full commission.

By contrast, Justice Department attorneys can look broadly at possible criminal acts, and they have the authority to issue subpoenas.

The department also is eager to do its part to restore confidence in U.S. financial markets, which have been shaken by high-profile accounting scandals. On Tuesday, President Bush signed a law that imposes new penalties on executives who "fudge the books."

Investigators in the AOL case are believed to be focusing on accounting questions raised by a recent Washington Post study. The newspaper said America Online had, among other things, booked revenue from ads sold for eBay and renegotiated long-term advertising contracts to recognize revenue more quickly.

In its statement, AOL said, "Our accounting is appropriate and in accordance with generally accepted accounting principles, and our auditors, Ernst & Young, have repeatedly confirmed that."

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