Time Warner Settles SEC Charges
The Securities and Exchange Commission said Monday that it had approved Time Warner Inc.’s proposal to pay $300 million to settle charges that it overstated advertising revenue and subscription numbers for its America Online unit.
SEC officials said the company would restate financial results by reducing its reported online advertising revenue by about $500 million for the fourth quarter of 2000 through 2002, in addition to the $190 million it had already restated.
The settlement brings an end to the SEC investigation of accounting at America Online, which was also the target of a Justice Department investigation. The two probes went on for some two years, helping to wipe away more than $200 billion in shareholder value since AOL purchased Time Warner in 2002.
The settlement also requires Time Warner to have 17 previous transactions reviewed by an independent examiner, which could result in additional restatements.
Details of the SEC-approved agreement are in line with a tentative settlement Time Warner announced in December. By settling the charges, Time Warner hopes to lift a cloud over the company that has been preventing it from using its stock for acquisitions.
“It’s nice to finally have the investigations in the past so people can increase their focus on core operations,” said Richard Greenfield, an analyst at Fulcrum Global Partners.
“It means you can take a footnote out of the annual report,” Dennis McAlpine of McAlpine Associates said.
Time Warner Chief Financial Officer Wayne Pace, Controller James Barge and Deputy Controller Pascal Desroches also settled SEC accusations that they caused the reporting violations and consented to cease-and-desist orders, the SEC said.
Time Warner, Pace, Barge and Desroches all agreed to the settlements without admitting or denying the SEC charges.
“We have confidence in our top financial officers, and we’re pleased that they will continue to serve our company in their current positions,” Time Warner Chief Executive Dick Parsons said in a statement.
In the December announcement, Time Warner said that it would pay $210 million to resolve criminal charges that America Online fraudulently inflated revenue figures and that it would pay $300 million to settle SEC charges.
“Our complaint against AOL Time Warner details a wide array of wrongdoing,” said Stephen Cutler, the SEC’s director of enforcement. These included fraudulent transactions to inflate online advertising revenue, fraudulent inflation of AOL subscriber numbers and misapplication of accounting principles, he said.
Attorneys for Pace, Barge and Desroches could not be reached for comment.
The company also faces more than 40 shareholder lawsuits. Analysts say the fact that there were no admissions of wrongdoing in the settlements with the Justice Department and the SEC could mute the effect of the suits.
Shares of New York-based Time Warner fell 28 cents to $18.42 on the New York Stock Exchange after the settlement was announced.
