Time Warner Settles Fraud Case

UPDATED: Time Warner said today that it has agreed to pay $210 million in criminal and civil fines to settle a federal fraud case stemming from allegedly shady advertising deals within its America Online division.

Under the terms of an agreement reached with the Department of Justice (DOJ), federal prosecutors charged the world’s largest media company with aiding and abetting securities fraud for allegedly colluding with Internet companies to artificially inflate profits, DOJ officials said today during a news conference.

But the feds will defer those charges for two years, providing AOL and its parent company continue to cooperate with the ongoing investigation.

The government has accused AOL of parsing out money to smaller Internet companies who in turn purchased ad space with AOL. The scheme was allegedly devised to make the company appear healthier financially, and enable the organization to exaggerate its growth.

An independent monitor will be hired to review the company’s internal controls, including those related to the accounting for advertising. The company also agreed to changes in several areas of its business practices.

Time Warner last month set aside $500 million to settle both cases. Of the $210 million in the DOJ matter, $60 million will go to the government and $150 million to settle civil lawsuits springing from those actions.

The company is also poised to reach a deal with the SEC, which has been investigating charges of irregular accounting practices. A settlement in that case is not expected today, because the SEC’s security division must first gain approval for any settlements with the agency commissioners. It is widely expected those fines will be in the neighborhood of $300 million.

The agency has been investigating whether a $400 million payment from German media company Bertelsmann AG was used to inflate AOL profits.

So far, no charges have been brought against any executives of the company, but neither the DoJ nor the SEC have made any immunity arrangements.

Time Warner executives have been anxious to settle both cases since they began nearly two years ago, because the investigations have hampered the company’s ability to make financials deals.

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