Federal investigators are looking into whether former executives of America Online Inc.’s (AOL) business affairs unit purposely misled accountants and others while forging a series of deals that allowed them to artificially inflate revenue figures, according to a new report.
The report, published in the online edition of the Washington Post Wednesday, is just the latest wrinkle in an ongoing probe into AOL Time Warner Inc.’s (AOLTW) accounting launched by the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) earlier this year.
The investigation has reportedly turned to a string of deals AOL made with California real estate site operator Homestore Inc., which is also being investigated by the SEC and DOJ for improper accounting.
According to the Post, sources have told investigators that former AOL executives David M. Colburn and Eric Keller intentionally concealed details of the deals made with Homestore that allowed both companies to artificially boost revenue.
In the transactions, Homestore allegedly paid third-party firms for products or services that it had no use for, and then convinced those companies to buy an equitable amount of advertising from AOL. In turn, AOL would share its ad revenue with Homestore, the Post said.
The “triangular” deals allegedly allowed both companies to meet financial targets.
An AOLTW spokeswoman declined to comment on the report Wednesday.
While news of improper accounting by the media conglomerate are not new, Colburn and Keller’s alleged concealment of the nature of the transactions from AOL accountants provides a new angle to the investigation.
Both former executives were forced out of AOL earlier this year, and AOLTW itself has acknowledged that the Internet unit misbooked revenue totaling $190 million.
The latest report comes just days before AOL is set to reveal its business strategy going forward under new unit head Jon Miller. In a meeting with analysts and investors Dec. 3, Miller is expected to announce that the Internet unit will diminish its reliance on advertising revenue and will focus on content deals and broadband growth.
Shares of AOLTW (AOL) traded up 7.23 percent to $16.47 on Wednesday afternoon.