Time Warner is nearing settlement with the Securities and Exchange Commission and the Justice Department on the accounting scandal in AOL. The projections of the amount that Time Warner can be expected to pay to cover fines and penalties range between $650 and $750 million, about $150-$250 million more than it had put in a reserve for this settlement. This amount is one of the largest penalties the SEC ever imposed on a company, matched only by $750 million fine paid by WorldCom Inc. in 2003.

 

An additional reason for the deal is that it allows Time Warner CEO Richard Parsons flexibility in raising funds for potential purchases of cable television companies next year. Pending probe of Time Warner’s statements led the SEC to ban the issue of new stock in the company or any of its divisions until the settlement of the AOL investigation. The settlement will allow Time Warner to limit shareholder lawsuit liability.

 

The company is accused of overstating revenue in its AOL unit before the merger with German media firm Bertelsmann AG. Investigators claim that Time Warner improperly included $400 million from Bertelsmann AG in advertising revenue inflating the revenue before acquisition.The SEC and Time Warner are still in dispute over which employees can be charged with wrongdoing.

 

America Online with 20 million subscribers is still the largest US Internet provider, although it has been losing its audience due to competition with cheaper providers.  

 

Removal of uncertainty over the company’s prospects lifted the share price to $17.94, up 48 cents, or 2.7%