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subject TimeWarner Settles AOL Fraud for $210 Mln
By Deborah Charles WASHINGTON (Reuters) - Media giant Time Warner Inc. (TWX.N: Quote , Profile , Research ) will pay fines of $210 million under an agreement with the U.S. government to be announced on Wednesday to settle charges that its America Online unit inflated revenue, a Justice Department official said. Time Warner is also expected to pay about $300 million more to settle charges with the Securities and Exchange Commission related to its buyout of a stake held by Germany's Bertelsmann AG (BERT.UL: Quote , Profile , Research ) in AOL Europe, a source familiar with the matter said. Time Warner in the third quarter took a reserve of $500 million to cover expected legal costs related to government probes into AOL's accounting practices. The Justice Department official said AOL, Time Warner's Internet unit, had agreed to cooperate with the investigation and implement new internal controls to avoid prosecution, but will defer prosecution for two years. The Justice Department will file a criminal complaint that accuses AOL and PurchasePro.com, a thriving software company that has since shut down, of engaging in a scheme to inflate revenue in federal court in Virginia, the official said. Top Justice Department officials are due to hold a news conference at 3 p.m. (2000 GMT) AOL will be fined $210 million in criminal-related fines, the official said. The fines include $150 million that will go into a compensation fund to pay for any civil litigation to resolve criminal charges and $60 million in criminal fines. Time Warner, the world's largest media company, is also required under a separate agreement to cooperate fully with the investigation, the official said. It removes one of the clouds from a story that's finally turning around, said Richard Steinberg of Steinberg Global Assets which owns 42,000 shares of Time Warner. The momentum is finally going in the right way. Maybe they'll get some wind in their back from advertising spending and they can finally concentrate on the business again. A Time Warner representative declined to comment. Time Warner stock was up 1.4 percent, or 28 cents, to $19.66 a share on the New York Stock Exchange in midday trading. The Justice Department official said the government is charging AOL and PurchasePro of scheming to artificially inflate PurchasePro's revenue to make its finances look better than they were. The official said the scheme took place from about the fourth quarter of 2000 to the first quarter of 2001. The merger of AOL and Time Warner closed in January 2001. Analysts have said that Time Warner could be shielded from shareholder lawsuits if the company doesn't have to admit to wrongdoing. (additional reporting by Kenneth Li in New York)
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