US: Eight ex-AOL executives charged with fraud

Publisher Name: 
The Financial Times

US regulators on Monday announced fraud charges stemming indirectly from the merger of Time Warner and AOL, the largest union in US corporate history and a symbol of the dotcom boom and bust of the early part of this decade.

Eight
former executives of the merged group were accused by the Securities
and Exchange Commission of participating in a scheme to inflate
internet advertising revenues at the merged AOL Time Warner by more
than $1bn. The civil charges stem from claims that the eight
artificially inflated online advertising as the dotcom boom evaporated,
sustaining the internet company's returns in the months leading up to
and after the deal with Time Warner. The allegedly inflated earnings
came at a time when investors, souring on the outlook for internet
companies, were starting to question the wisdom of the merger, which
handed AOL shareholders control of the more established traditional
media group.

The
charges, which include a complaint against John Michael Kelly, the
former AOL chief financial officer who went on to hold the same
position at the enlarged AOL Time Warner, are the first levelled
against individuals over the affair.

The company itself agreed to
a $300m settlement in 2005 to settle related charges. Four individuals,
including Mr Kelly, will contest the charges filed on Monday. In a
separate lawsuit, four others settled charges with the SEC by agreeing
to pay a total of more than $8m, while neither admitting nor denying
wrongdoing.

The SEC said on Monday that when the Time Warner
merger was pending in mid-2000, AOL faced a growing crisis with regard
to its advertising revenue as the market for online advertising began
to shrink.

In response, the SEC claims, the defendants
participated in a scheme that led the company to inflate its
advertising revenue through a series of "round-trip" transactions in
which AOL "effectively funded its own advertising revenue by giving its
counterparties the means to purchase AOL online advertising that the
counterparties did not need or want".

In addition to Mr Kelly,
Steven E. Rindner, former senior executive in the company's business
affairs unit, Joseph A. Ripp, former chief financial officer of the AOL
division, and Mark Wovsaniker, former head of accounting policy, are
contesting fraud-related charges.

AMP Section Name:Corruption