- The Washington Times - Thursday, August 1, 2002

The Justice Department is investigating the accounting practices of AOL Time Warner, the world's largest media conglomerate.

In a statement yesterday, AOL Time Warner confirmed the investigation but said its accounting practices were not unusual and that it would cooperate with the Justice Department. The company also is under investigation by the Securities and Exchange Commission.

Questions about AOL Time Warner's accounting arose last month after published reports indicated the company had boosted revenue claims by trading ads for equipment, or selling ads for third parties and then recording those sales as revenue.

The exact nature of the Justice Department probe is not known; the department does not comment on current investigations.

The probe comes amid reports of accounting irregularities at Global Crossing, Adelphia Communications Corp., Enron Corp.and WorldCom Inc., which last month filed for the largest bankruptcy in history.

"In this environment, any probe has got to be taken quite seriously," said Philip Leigh, an analyst with Raymond James in St. Petersburg, Fla. "I think this is a situation like termites. You never know how bad the danger is until the professional inspector gets in there."

News of the Justice Department probe sent AOL Time Warner's stock down 90 cents yesterday to close at $11.50 on the New York Stock Exchange. A slump in online ad sales and problems relating to the integration of AOL and Time Warner in 2001 have caused the company's stock to fall about 64 percent since the beginning of the year.

In its most recent quarterly report released last week, AOL Time Warner said it earned $394 million (9 cents per share) compared with a loss of $734 million (17 cents) during the like quarter of last year.

The company made moves last month to restore investor confidence by accepting the resignation of Chief Operating Officer Robert Pittman and overhauling its corporate structure. The Internet division, which acquired Time Warner in January 2001, is now part of the unit including Time Inc. and Time Warner Cable.

Mr. Leigh said analysts took note when, on the day news of suspected accounting irregularities surfaced, the AOL Time Warner board of directors had an unusually long meeting before Mr. Pittman resigned.

"I wish I had the minutes of that meeting," Mr. Leigh said.

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