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SEC Delves Deeper Into AOL Ad Deals Probe Moves Beyond Accounting Problems Already Disclosed

Apr 22, 2003 | Washington Post

The Securities and Exchange Commission is investigating millions of dollars of advertising deals involving America Online that go significantly beyond the scope of problems already disclosed by AOL Time Warner Inc., sources familiar with the probe said Monday.

Among the deals under scrutiny are a $100 million transaction between America Online and, as well as smaller deals with and Catalina Marketing Corp. The transactions allegedly reflect efforts by America Online to artificially boost ad revenue before and after its merger with Time Warner in January 2001, sources said.

These deals, and others like them, explain why chief executive Richard Parsons has stated that he cannot ensure that there will be no additional accounting problems revealed while the federal probe continues.

The transactions in question are detailed in millions of pages of documents turned over by AOL Time Warner to the SEC in response to subpoenas and other document requests. They weren't included in the $190 million in revenue that AOL Time Warner said last fall it planned to restate, or in the company's recent disclosure that the SEC has challenged AOL's accounting for $400 million in ad revenue from media giant Bertelsmann AG.

The SEC probe may continue for months, sources said, because federal investigators want to make certain that they don't overlook any material issues before attempting to negotiate a settlement with AOL Time Warner.

AOL Time Warner officials remain hopeful that the company's efforts to cooperate with the probe will enable the commission to bring the matter to closure in the near future. But SEC lawyers want to avoid being embarrassed by closing the books prematurely and being upstaged later by disclosures of wrongdoing.

Meanwhile, saddled with $30 billion in debt, AOL Time Warner has put its sports teams, book publishing business and other divisions up for sale. It's likely, sources said, that the company will announce the sale of its 50 percent stake in the Comedy Central cable network this week to Viacom Inc., which already owns a half-interest in the channel.

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