Eight ex-AOL officials sued for inflating results by US regulator

US federal stock market regulator Securities and Exchange Commission  yesterday said eight former executives of AOL Time Warner Inc. fraudulently inflated the company's online advertising revenues by more than $1 billion between 2000 and 2002.

Four of the executives have agreed to settle the civil charges brought by the Securities and Exchange Commission (SEC) by paying a total of roughly $8 million in fines and returning allegedly ill-gotten gains. They are David Colburn, Eric Keller, Jay Rappaport and James MacGuidwin. Colburn had been head of the business affairs unit in which Keller and Rappaport also worked, while MacGuidwin had been company controller.

The quantum of punishment handed out to the four executives who settled varied widely. While MacGuidwin will pay $4 million and be banned from serving as a company director for 10 years, the corresponding figures for Colburn are $2 million and seven years. The relatively junior Keller and Rappaport have been fined $1 million each.

The SEC charges are pending against the other four: John Michael Kelly, former AOL Time Warner chief financial officer, Joseph Ripp, ex-chief financial officer of the AOL division, Steven Rindner, a former senior executive in the business affairs unit, and Mark Wovsaniker, former head of accounting policy.

The SEC alleged that between 2000 and 2002 the eight men had produced or contributed to financial statements that inflated advertising results. At that time, AOL had just bought Time Warner for $164.7 billion and the newly merged firm was under pressure to prove its financial viability, when the dotcom bubble had burst and similar firms were going bankrupt.

The SEC, which began investigating the firm in 2002, also claims that AOL Time Warner used various "elaborate accounting schemes" to boost online ad revenue figures. These included so-called "round trip" transactions, where the firm bought extra adverts for clients including Sun Microsystems, WorldCom, Veritas Software and Hewlett-Packard to try to boost figures further. In those agreements, AOL allegedly paid the companies to buy online advertising space from AOL, booking the proceeds as revenue.