The biggest chunk of $49 million in questionable ad revenue under investigation at AOL Time Warner Inc. (NYSE: AOL – News) involves money that was inappropriately booked from WorldCom Inc. , people familiar with the investigation told The Wall Street Journal.
The money stemmed from the particularly close relationship America Online and WorldCom developed during the past few years, in which AOL became WorldCom’s biggest customer, paying the telecommunications firm at least $900 million a year to carry the bulk of its Internet traffic. Most recently, in July 2001, the two companies struck a massive deal in which WorldCom agreed to buy more than $ 200 million in advertising across AOL properties in exchange for AOL continuing to keep its network traffic on WorldCom’s network.
People close to the situation said the latest deal was negotiated in part by David Colburn, a top AOL deal maker who was ousted two weeks ago, and Scott Sullivan, WorldCom’s former chief financial officer, who has been charged with securities fraud after the company, now in bankruptcy-court proceedings, found a total of $7.2 billion in improper accounting.
The pact is likely to bring greater scrutiny of the close, but often contentious, relationship between the companies. The Securities and Exchange Commission has issued subpoenas to AOL seeking a variety of documents, including transactions in which Mr. Colburn was involved. The SEC probe of AOL is wide- ranging, and investigators are expected to look at a range of subjects, including sales of stock by company executives.
AOL said it learned of the questions about the accounting on the $49 million of revenue the week beginning Aug. 5. The Washington Post reported Thursday that a portion of the $49 million was related to WorldCom.