SEC Charges Former AOL Execs in $1B Web Ad Scam
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The U.S. Securities and Exchange Commission on Monday charged eight former executives of AOL Time Warner, now known as Time Warner (NYSE: TWX), in a fraudulent scheme that overstated company advertising revenue by more than $1 billion.
Four of the defendants settled with the SEC and the other four are facing fraud-related charges in federal court in New York.
The former executives participated in a scheme from mid-2000 to mid-2002 to artificially inflate the company's reported online advertising revenue, the SEC said in a statement. Online advertising revenue was a key measure analysts and investors used to evaluate the company.
The SEC settled charges with David Colburn, former head of the company's business affairs unit; Eric Keller, former senior manager in the business affairs unit; James MacGuidwin, former controller; and Jay Rappaport, former senior manager in the business affairs unit. The four neither admitted nor denied they were guilty of the charges.
As part of their settlements, Colburn agreed to pay almost $4 million, Keller almost $1 million, MacGuidwin $2.4 million, and Rappaport almost $750,000, the SEC said.
Colburn and MacGuidwin were also barred from serving as officers or directors of a public company for 10 years and seven years, respectively.
John Michael Kelly, former chief financial officer of AOL Time Warner; Steven Rindner, former senior executive in the business affairs unit; Joseph Ripp, former chief financial officer of the company's AOL division; and Mark Wovsaniker, former head of accounting policy, are facing fraud-related charges, the SEC said.
The SEC said it is seeking disgorgement of ill-gotten gains and civil monetary penalties from each of them.
"It was a very significant fraud and another instance that shows the commission ... is going to be diligent protecting investors," said David Frohlich, an assistant director in the SEC's enforcement division.
In 2005, Time Warner agreed to pay $300 million to settle a related SEC case.
Mark Hulkower, an attorney for Rindner, said his client is disappointed the SEC is pursuing a case against him but looks forward to the opportunity to clear his name.
Rappaport's attorney, W. Neil Eggleston, said his client is pleased the matter has been resolved without any restraint on his ability to act as an officer or director of a public company.
David Geneson, an attorney for Ripp, said "we are appalled and dismayed" at the charges. He said Ripp investigated and uncovered the accounting fraud at the AOL division and was not involved in any fraudulent conduct.
An attorney for Kelly did not immediately have a comment about the charges. Attorneys for the other defendants did not immediately return messages seeking comment.