AOL Probes May Focus on Deals by Ex-Official

U.S. prosecutors and securities regulators are investigating advertising transactions that former AOL Time Warner Inc. executive David Colburn oversaw when he headed America Online Inc.’s business affairs unit, people familiar with the inquiry said.

The Justice Department began its investigation before Colburn left the company last week, the people said. On Wednesday, AOL Time Warner disclosed it was reviewing whether its America Online unit, the world’s largest Internet service, had “inappropriately” booked revenue totaling $49 million from three transactions over six quarters.

Colburn oversaw or was directly involved in some of the transactions being examined by prosecutors and by the Securities and Exchange Commission, the people said.

The SEC expanded an investigation after the Washington Post reported July 18 that AOL Time Warner boosted revenue by $270 million with “unconventional” transactions. These included booking as revenue advertisements America Online sold on behalf of EBay Inc. and ads it provided for Sun Microsystems Inc. in return for computer equipment, the newspaper reported.

Colburn’s Washington lawyer, Roger Spaeder, declined to comment. Justice Department spokesman Bryan Sierra also refused to comment.

AOL Time Warner notified the SEC and federal prosecutors earlier this month of concerns about whether America Online had properly booked the $49 million as revenue after an employee raised questions about one of the three transactions, a person said. AOL Time Warner discovered the two other transactions in the course of reviewing the employee’s complaint, people said.

The company disclosed July 31 that the Justice Department and the SEC were investigating accounting of some, unspecified, advertising transactions.

Prosecutors in the U.S. attorney’s office in Alexandria, Va., are conducting the criminal investigation, people said.

Colburn headed America Online’s business affairs unit in Dulles, Va., before the company acquired Time Warner Inc. to form AOL Time Warner Inc. He became president of business development for the combined company’s subscription services and advertising-and-commerce units.

After Colburn’s departure last week, company officials changed the locks on his office to secure the files about the transactions being reviewed, a person said.

Shares of New York-based AOL Time Warner rose 70 cents to $12.56 on the New York Stock Exchange.