SEC to probe AOL outlook and share sales
>>Fifteen senior executives and directors of AOL, including Steve Case, the chairman, and Dick Parsons, the chief executive, made profits totalling almost $500m by selling shares between February and June of last year, while the company repeatedly insisted it would meet ambitious earnings projections laid out more than a year before.<<
By Peter Thal Larsen, Adrian Michaels, Ien Cheng and Christopher Grimes in New York
Published: August 22 2002 21:57 | Last Updated: August 22 2002 21:57
The Securities and Exchange Commission, the main US financial regulator, is set to examine a series of upbeat forecasts made last year by executives of AOL Time Warner as part of its investigation into the world's biggest media company.
Fifteen senior executives and directors of AOL, including Steve Case, the chairman, and Dick Parsons, the chief executive, made profits totalling almost $500m by selling shares between February and June of last year, while the company repeatedly insisted it would meet ambitious earnings projections laid out more than a year before.
The share sales have attracted fresh attention since AOL admitted last week that it may have overstated revenues at its America Online internet division by $49m between September 2000 and March 2002. AOL is also examining other transactions. There is no suggestion the directors did not believe forecasts could be met when they sold their shares, or that they were aware of improper accounting.
Nonetheless the SEC is expected to look at the forecasts and the timing of the share sales as it widens its investigation into AOL's accounting practices, launched several weeks before the company disclosed the questionable revenues.
The SEC declined to comment. A spokesman for AOL said he could not comment on the ongoing SEC investigation.
The share sales by top AOL executives are the subject of a class action lawsuit filed against the company on July 19. The suit, brought by Berger & Montague, claims that "certain company insiders" sold AOL stock while in possession of "material adverse non-public information".
Most of the profits were made by directors who exercised options and sold the shares immediately. Between February and May last year, Mr Case made a profit of almost $100m, while Mr Parsons pocketed $21m. Bob Pittman, who stepped down as AOL's chief operating officer last month, made $66m.
The share sales were made as AOL came under scrutiny regarding its ability to meet targets set following the announcement of the merger of AOL and Time Warner in January 2000.
Despite a collapse in internet advertising and the slowdown in the media industry in the first half of 2001, AOL executives repeatedly said they expected the company to meet targets of 12 per cent revenue growth and a 30 per cent increase in earnings before interest, tax, depreciation and amortisation for the year. The targets were abandoned after the September 11 terrorist attacks caused a further decline in the advertising market.
Among the questions the SEC will ask is whether AOL's forecasts were unrealistic and therefore caused the share price to be artificially inflated while the executives were taking profits.
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