Securities and Exchange Commission regulators on Monday filed civil fraud charges against eight former AOL Time Warner executives over allegations they overstated the Internet company's advertising revenue in excess of $1 billion.
The lawsuits, filed in U.S. District Court for the Southern District of New York, allege John Michael Kelly, former CFO of AOL Time Warner; Steven E. Rindner, a former Business Affairs unit senior executive; Joseph A. Ripp, former CFO of the AOL division; and Mark Wovsaniker, former Accounting and Policy head, created a fraudulent scheme where AOL Time Warner funded its own advertising revenue by giving purchasers funding to buy their own online advertising. That, in turn, allegedly created fraudulent transactions at the media titan between the mid-2000 and mid-2002 period, according to the SEC statement.
The SEC also filed a lawsuit against David M. Colburn, former head of AOL Time Warner's Business Affairs unit; Eric L. Keller and Jay B. Rappaport, former senior managers in the same unit as Colburn; and James F. MacGuidwin, former controller, over allegations the group artificially inflated the company's reported online advertising revenue. These four executives, however, reached a settlement with the SEC.
Under the settlement, all four will pay disgorgement and pre-judgment interest, as well as civil penalties. The total fines and penalties these four executives will pay will reach nearly $8.1 million.
The lawsuits come more than three years after Time Warner agreed to pay a $300 million civil penalty, stemming out of a similar SEC investigation. That agreement called for the company to restate $500 million in advertising revenue for the two-year period ending mid-2002.