AOL chiefs accused of insider deals

AOL Time Warner executives including chief executive Richard Parsons and vice-chairman Ted Turner have been accused of insider trading in a lawsuit filed by disgruntled investors.

The University of California and New York-based Amalgamated Bank filed a suit yesterday in Los Angeles, naming as defendants several former and current executives at the US media group as well as auditor Ernst & Young.

The university, which invested heavily in Time Warner before its $106bn (£67bn) merger with AOL, alleges that executives from both companies took advantage of the January 2001 deal to cash in stock options on an accelerated basis. The lawsuit accused them of using "tricks, contrivances and bogus transactions" to inflate the share price.

It said the merger triggered an early sale of 35m stock option shares valued at $1.7bn, for the top five AOL executives alone. Defendants in the case include former chairman Steve Case, who resigned in January, former chief executive Gerald Levin, who left in early 2002, and current chairman and chief executive Richard Parsons. Mr Turner, the largest single shareholder in AOL Time Warner, will step down officially next month.

"The University of California made a sound investment in a solid company when it invested heavily in Time Warner prior to its merger with AOL," David Russ, the university's treasurer, said. "The value of that investment was significantly impaired as a result of the merger."

The university said it owned $800m worth of shares in Time Warner but saw the value of its stake slashed by $450m as a result of the AOL merger.

The suit is the latest in a series of setbacks for the company, which is also under investigation for alleged accounting irregularities around the time of the merger, and is shedding subscribers to its internet service.

AOL Time Warner would not comment on the suit.

Mr Parsons has instigated a sell-off programme in an effort to reduce the company's $27bn debt by a third over the next two years.

It emerged yesterday that AOL had begun lobbying the US competition watchdog, the federal communications commission, to lift some of the conditions of its merger.