US authorities probe deals by AOL executives

US investigators are looking into whether former executives of America Online's (AOL) business affairs unit purposely misled...

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.

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