AOL Time Warner revealed yesterday that the US Department of Justice (DOJ) is investigating the company's accounting practices, raising the possibility of criminal charges. The DOJ investigation of the world's largest media company comes just weeks after corporate accounting scandals at Enron, WorldCom, and other firms rocked the financial world, eliciting calls for widespread reform. Within 2 to 3 weeks, the DOJ will announce whether criminal charges are warranted.
"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," an AOL Time Warner spokesperson said yesterday, acknowledging the various federal investigations against the company. "As we said last week, we are cooperating 100 percent with the SEC, and we will cooperate with the \[DOJ\] as well."
As reported previously in WinInfo Daily UPDATE, the Securities and Exchange Commission (SEC) is also investigating AOL for potentially illegal bookkeeping practices, but the DOJ's sudden involvement suggests that far more serious problems exist at the company than previously suspected. Last month, a "Washington Post" expose of the company charged that AOL's online unit accepted advertising instead of a cash settlement in a legal dispute and credited to AOL ad sales that the online unit sold, in fact, for eBay. These "unconventional" ways of increasing revenue jumpstarted the SEC investigation. This isn't the first time AOL has used questionable methods to massage its books: In May 2000, the company paid a $3.5 million fine to settle similar SEC accounting charges.
AOL and Time Warner only recently finalized their merger, and the company has been on shaky ground. This year, stock in the combined company tumbled dramatically; AOL Time Warner stock prices are currently hovering just above $10.