Time Warner settles with SEC over accounting abuse

Time Warner yesterday finalised a $300 million settlement with the Securities and Exchange Commission related to accounting abuses at its AOL division, opening the way for the media company to again tap the capital markets.

The ability to raise funds in the capital markets could be important if Time Warner's bid to buy Adelphia, the bankrupt cable operator, is successful.

A decision by Adelphia on whether to accept the joint bid submitted by Time Warner and Comcast, the biggest US cable operator, or one from a number of private equity buyers is expected in early April.

Time Warner and Comcast are believed to be offering about $17 billion in a mixture of cash and shares. The SEC settlement removes the last cloud hanging over Time Warner following its ill-fated takeover by internet company AOL at the height of the dotcom bubble.

The settlement had been expected since December, when Time Warner announced a $210 million agreement with the justice department that would spare it prosecution for the accounting and advertising frauds at AOL.

The investigations centred on abuses in AOL's advertising and accounting beginning in 2000, when the internet bubble burst, and shortly after AOL took over Time Warner.

In its joint bid for Adelphia, Time Warner is believed to be the lead bidder, with Comcast likely to play a supporting role in terms of financing it.

Time Warner had already restated its financial results by approximately $500 million for the fourth quarter of 2000 through 2002. It has appointed an independent examiner to review its accounts. This is expected to be completed within 180 days.

The SEC concluded that AOL failed to consolidate the financial results of its European subsidiary from 2000-2002, allowing it to improve its reported earnings.

It noted that AOL improperly recorded as advertising revenue a $400 million payment from Bertelsmann, the German media company, related to the sale of its interest in AOL Europe.

Three Time Warner employees, including Wayne Pace, chief financial officer, were cited by the SEC for their roles in accounting for a transaction with Bertelsmann. The three will remain with the company. - (Financial Times Service)