AOL:
>>PROBE LIKELY SEEKING CRIMINAL ELEMENT
Lawyers familiar with such inquiries said it was not unusual for the Justice Department to enter an investigation to see whether the activities being probed were in any way criminal.
"What we are likely to see fairly early is a decision from the DOJ on whether or not this (inquiry) will turn criminal in nature," said Bob Mintz, head of the white-collar criminal practice at the New Jersey-based firm of McCarter & English.<<
AOL Time Warner: Government Opens Probe
July 31, 2002 05:58 PM
By Reshma Kapadia
NEW YORK (Reuters) - AOL Time Warner Inc. AOL.N has been targeted in a federal probe for the second time in as many weeks, disclosing on Wednesday that the U.S. Department of Justice has started an inquiry into accounting practices at its America Online division.
The company issued a statement confirming a report in USA Today on Wednesday that the Justice Department had opened an investigation into the accounting practices at the beleaguered online unit, and said it will cooperate fully.
The mammoth media company said on July 24 the U.S. Securities and Exchange Commission had opened an inquiry into the company's accounting.
Shares of AOL Time Warner fell 90 cents, or more than 7 percent, to close at $11.50 on the New York Stock Exchange.
The SEC opened a fact-finding inquiry into AOL after reports in the Washington Post earlier this month raised concerns about accounting practices, including possible inflation of revenue, at the online unit during 2000 and 2001.
"In the current environment, when anyone raises a question about accounting, it's not surprising that the relevant government agencies will want to look into the facts," the company said. "As we said last week, we are cooperating 100 percent with the SEC, and we will cooperate with the Department of Justice as well."
The company reiterated that its accounting was appropriate and in accordance with generally accepted accounting practices, and that its outside auditors have repeatedly confirmed that.
The Justice Department declined to comment.
Separately, AOL Time Warner's search for a new head for its online unit has been narrowed from a wide list, sources close to the search said on Wednesday. They said Jon Miller, a former top executive at USA Interactive USAI.O -- home to businesses such as Home Shopping Network and Ticketmaster Inc. TMCS.O --is a leading contender for the job.
AOL has been seeking a replacement for AOL Time Warner Chief Operating Officer Robert Pittman, who resigned under pressure only months after he was sent to help lead AOL's recovery. AOL declined to comment on the search.
PROBE LIKELY SEEKING CRIMINAL ELEMENT
Lawyers familiar with such inquiries said it was not unusual for the Justice Department to enter an investigation to see whether the activities being probed were in any way criminal.
"What we are likely to see fairly early is a decision from the DOJ on whether or not this (inquiry) will turn criminal in nature," said Bob Mintz, head of the white-collar criminal practice at the New Jersey-based firm of McCarter & English.
"If so, we will likely see a barrage of grand jury subpoenas for records and may even see subpoenas for testimony at some point in the near future, but this is the very preliminary stages of an investigation."
The government is likely to move quickly because of widespread concerns about accounting that have shaken confidence in corporate America.
"Historically, these (inquiries) have taken some time to ferret out. We are however, in a different era," said Frank Goldstein, of Sidley Austin Brown & Wood in Washington.
"These things are high-profile, and enormous attention has been put on them by markets and the media and perhaps even with investors. So that leads me to believe we're probably talking about a matter of weeks, not months," Goldstein said.
The inquiries are the latest cloud to hang over AOL Time Warner as the company is still contending with a variety of issues including slowing growth at its AOL unit, a recent management upheaval and angry investors demanding a clearer strategy.
Its stock, off more than 65 percent this year, has been hit by jitters in the wake of the accounting scandals at Adelphia Communications Corp. ADELQ.PK , WorldCom Group. WCOEQ.O and other high-profile companies.
Even though the stock is trading near four-year lows, analysts and investors are not eager to buy it.
"We sold out of AOL as soon as we first heard about the SEC investigations," said Vick Khoboyan, an analyst at Financial Management Advisors. "The inquiries could be for AOL and Time Warner and we didn't want to take that chance."
The company's bonds were also actively traded on Wednesday. AOL Time Warner's investment-grade 6.875 percent notes maturing in 2012, quoted by dollar price like "junk" bonds, fell 3.5 cents on the dollar to 82 cents, traders said, pushing their yield up nearly two-thirds of a percentage point to 9.78 percent.
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