AOL inquiry widens

AOL Time Warner has been dealt a new blow after US accounting watchdogs extended their investigation into allegations that the troubled US media giant illegally boosted revenues from its advertising deals.

The securities and exchange commission is to look at several advertising deals AOL signed around the time of its merger with Time Warner in January 2001, when it was desperate to keep its revenue figures up.

These include a £64m deal with recruitment website Monster.com and several other similar smaller agreements, according to a report in today's Washington Post.

AOL, which last year admitted to overstating its revenues by £121m, is already facing an investigation into £254m in overstated revenues from a deal with German media giant Bertelsmann.

Now it faces allegations that the Monster.com transaction was in fact a profitless "round-trip" agreement, where both companies agreed to promote the other on their websites, but the advertising revenue still appeared on the bottom line.

The deal dates from the same period as the others under investigation, immediately prior to and following the record-breaking £67bn merger in January 2001, when AOL was desperate to show that its revenues were holding up despite the dotcom slump.

According to the Washington Post the transactions were detailed in millions of pages of documents turned over by AOL Time Warner to the SEC in response to subpoenas and other document requests.

They were not included in the company's recent disclosure that the SEC had challenged AOL's accounting for £254m in ad revenue from media giant Bertelsmann.

The SEC investigation started last summer, and has already resulted in the company restating £121m over a two-year period. The justice department has also been investigating AOL and its accounting for revenue from some advertising and commerce deals.

Separately, the New York Times reported that the SEC was investigating a two-year-old agreement AOL Time Warner made to sell £16m in advertising to Vivendi Universal as part of a deal for its stake in AOL France.

The paper said the SEC was questioning whether Vivendi Universal's payment was actually a form of rebate used to increase AOL Time Warner's revenue and earnings, instead of a legitimate purchase of advertising.

Last week two lawsuits filed by disgruntled investors alleged that AOL Time Warner executives, including CNN founder Ted Turner, were guilty of insider trading and that advertising revenues had been illegally inflated by over £1bn.

The latest flurry of revelations will come as an embarrassment to the AOL Time Warner chief, Richard Parsons, who is desperately trying to focus on cutting debt and revitalising the struggling internet arm of the company ahead of Wednesday's quarterly results announcement.