WASHINGTON/NEW YORK (Reuters) - Time Warner Inc. said on Wednesday it
agreed to pay the U.S. government $510 million to resolve criminal
and civil charges that its America Online unit fraudulently inflated
its revenue figures.
The agreements close a two-year investigation by the U.S. Justice
Department and Securities and Exchange Commission and gives the
world's largest media company financial flexibility to pursue a range
of deals, including the acquisition of cable operator Adelphia
Communications Corp.
"For them to be an effective and fully competitive suitor, they will
be pressed to clear their reputation from any type of censure," said
Thomas Russo, a portfolio manager at asset manager Gardner, Russo,
Gardner, which owns shares in the company.
Time Warner Chief Executive Dick Parsons told employees in an internal
company memorandum, "While there are still challenges ahead, the steps
we announced today will help to remove a cloud that has been hanging
over the company for some time now,"
The company, which is home to such assets as Bugs Bunny, CNN and
People magazine, has already set up a $500 million reserve to
cover anticipated costs of the agreements.
DEFERRED PROSECUTION
Time Warner said it will pay $210 million as part of a deferred
prosecution agreement with the U.S. Justice Department to resolve
criminal charges of aiding and abetting securities fraud.
Under the agreement filed in federal court in Virginia, Time Warner
accepted responsibility for criminal violations made by AOL employees
and pledged to cooperate fully with the Justice Department in its
investigation into individuals involved in the fraud, among other
conditions.
In exchange, the government agreed to defer prosecution of the company
for two years, after which it will dismiss charges if Time Warner
complies with the deal.
"The agreements we've reached today with America Online and Time
Warner give the company a chance to turn itself around and avoid the
consequences of a criminal conviction," said Deputy Attorney General
James Comey.
U.S. Attorney Paul McNulty said the investigation was continuing and
he expected additional criminal charges.
The company has offered to pay about $300 million to settle fraud
charges with the U.S. Securities and Exchange Commission related to
its buyout of a stake held by Germany's Bertelsmann AG AOL Europe.
While a final resolution with the SEC has not been reached, the staff
of the SEC has agreed to recommend the proposal to the commissioners,
who must sign off on any settlement, Time Warner said in a statement.
Time Warner will also agree to an independent examiner who will review
the company's accounting on online advertising revenue from 1999 to
2002, which may result in further restatements.
Time Warner said it admits no guilt or denies any
wrongdoing as part of the SEC proposal.
DEALINGS WITH PURCHASEPRO
The Justice Department's charges stemmed from AOL's dealings with the
once-thriving now defunct software company PurchasePro.com. Court
documents said "six or more" AOL officers or employees aided
PurchasePro.com's officers to falsely inflate the company's revenue.
No AOL officials have yet been charged in the case and Justice
Department officials declined to identify any of the AOL officials who
may be charged.
As part of the deal with the Justice Department, four former
PurchasePro executives agreed to plead guilty and cooperate with the
government's investigation. They also settled civil charges with the
SEC.
Time Warner stock closed the day flat at $19.38 on the New York Stock
Exchange.
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