The U.S. Justice Department has launched an investigation into the accounting practices of AOL Time Warner Inc., focusing on business deals of its Dulles-based online division.
The Justice Department action, confirmed by the company today, comes a week after Chief Executive Officer Richard D. Parsons disclosed a separate probe by the Securities and Exchange Commission.
In a written statement, the world’s largest media company said, “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. As we said last week, we are cooperating 100 percent with the SEC, and we will cooperate with the Department of Justice as well.”
The company said its accounting is appropriate and in accordance with generally accepted accounting principles, and its outside auditor, Ernst & Young LLP, has repeatedly confirmed that.
The two federal probes follow a Washington Post report that examined how the world’s largest online service generated advertising and commerce revenue through a series of unconventional transactions from 2000 to 2002. USA Today first disclosed the existence of a Justice Department probe in today’s paper.
The company’s recent troubles have battered it’s stock prices. The stock lost more than 6 percent of its value today and was trading at around $12 at noon.
AOL Time Warner moved to restore investor confidence this month. Robert W. Pittman announced that he is retiring as chief operating officer and the company overhauled its corporate structure, making the online division a part of a unit that also includes Time Inc., Time Warner Cable and the AOL Time Warner Book Group.
The reorganization is a stunning turn of events for the Internet division, which acquired Time Warner about a year and a half ago in what was then considered a triumph of new media over old media.
Justice Department officials did not immediately comment on the reports of their investigation, and it was unclear whether they were conducting a criminal or civil probe.
The AOL disclosure follows recent business upheavals. Disclosures of accounting irregularities following the collapse of Enron, Global Crossings and WorldCom have shaken Wall Street. And former officers of the Adelphia Communications cable company were arrested last week in an investigation of business practices there.