New York, Aug. 23: The Securities and Exchange Commission is looking into AOLís complex swapping transactions with Qwest Communications International and WorldCom, people involved in the investigation said.
Edward Adler, a spokesman for AOL Time Warner, declined to comment on its deals with the two companies, which are under separate investigations by the SEC. But an executive with knowledge of an internal accounting inquiry at AOL Time Warner said that the company was closely re-examining AOLís deals with both companies. AOL Time Warnerís investigation had already identified its transactions with WorldCom as a possible source of overstated revenue, this person said.
AOL Time Warner previously disclosed that it may have improperly booked about $ 49 million from three transactions as advertising and commerce revenue from third parties, and WorldCom was involved in one of the three transactions. That the deal with WorldCom contributed to the questionable $ 49 million was reported Thursday in The Washington Post.
The $ 49 million is a tiny portion of the AOLís revenue during the last six quarters, and no clear evidence has yet emerged that AOL significantly overstated its revenue or violated accounting rules. But AOL Time Warner is continuing to review its own accounting in addition to the SEC investigation.
Particularly significant may be the review of the period before June 2000, when shareholders approved AOLís acquisition of Time Warner. Investors are eager to know whether AOL had exaggerated its growth prospects and misled Time Warner board members. This would make the company more vulnerable in class action suits.
AOLís revenue plummeted after its acquisition of Time Warner closed in January 2001, dragging the combined companyís share price down more than 70 per cent. The period before the acquisition also preceded the period of financial reports that AOL Time Warnerís top executives were recently required to certify to the SEC, leading to disclosure of the $ 49 million.
AOL Time Warner executives said that SEC investigators are looking into many, if not all, of AOLís major transactions during the last few years, some of which may have inflated its revenue.