US investigators are looking into whether former executives of
America Online's (AOL) business affairs unit purposely misled
accountants and others while forging a series of deals that allowed
them to inflate revenue figures artificially, according to a report
in yesterday's online Washington Post.
This is the latest wrinkle in an ongoing probe into AOL Time
Warner's (AOLTW) accounting launched by the US Securities and
Exchange Commission (SEC) and the US Department of Justice (DOJ)
earlier this year.
The investigation has reportedly turned to a string of deals AOL
made with California real estate site operator Homestore, which is
also being investigated by the SEC and DOJ for improper
accounting.
According to the report, sources have told investigators that
former AOL executives David Colburn and Eric Keller intentionally
concealed details of the deals made with Homestore that allowed
both companies to boost revenue artificially.
Homestore allegedly paid third-party firms for products or services
that it had no use for and then convinced those companies to buy an
equitable amount of advertising from AOL. In turn, AOL would share
its advertising revenue with Homestore.
The "triangular" deals allowed both companies to meet financial
targets, according to the report.
Colburn and Keller's alleged concealment of the nature of the
transactions from AOL accountants provides a new angle to the
investigation. However, an AOLTW spokeswoman yesterday declined to
comment on the report.
Both former executives were forced out of AOL earlier this year,
and AOLTW itself has acknowledged that the Internet unit misbooked
revenue totalling $190m (£122m).
The latest report comes just days before AOL is set to reveal its
business strategy under new unit head Jon Miller. In a meeting with
analysts and investors scheduled for 3 December, Miller is expected
to announce that the Internet unit will diminish its reliance on
advertising revenue and will focus on content deals and broadband
growth.