AOL advertising inquiry widens

The US financial watchdog has extended its inquiry into the alleged overstatement of advertising revenues at AOL Time Warner, according to reports.

The securities and exchange commission is investigating deals signed by America Online, the internet arm of AOL Time Warner, around the time of its $106bn (£67bn) merger with Time Warner in January 2001.

The inquiry has widened to include a $100m deal with recruitment website Monster.com and smaller agreements with online healthcare firm Drkoop.com and marketing services company Catalina Marketing, according to a report in the Washington Post yesterday.

The investigation started last year and has already resulted in the company reducing advertising income figures by $190m over two years. A $400m advertising deal with German media group Bertelsmann is also under investigation.

The SEC is investigating allegations that the Monster.com transaction was in fact a profitless "round-trip" agreement, whereby each company agreed to promote the other on its website, but the advertising revenue still appeared on the bottom line. The deal was detailed in millions of pages of documents turned over by AOL Time Warner to the SEC in response to subpoenas and other requests. The US justice department has also been investigating AOL's accounting for revenue from some advertising and commerce deals.

A spokeswoman for AOL Time Warner would not comment on the report but said the group would give an update on the inquiry when it announces first-quarter results today.

Separately, the New York Times reported yesterday that the SEC was investigating a $25m advertising deal signed in 2001 when AOL Time Warner bought Vivendi Universal's stake in AOL France. The SEC is questioning whether Vivendi's payment was a form of rebate used to increase AOL Time Warner's revenue, rather than a legitimate purchase of advertising.

Last week two lawsuits filed by disgruntled investors alleged that AOL Time Warner executives, including vice-chairman Ted Turner, were guilty of insider trading. The latest revelations will come as an embarrassment to AOL Time Warner chief executive Richard Parsons, who is focusing on cutting debts of $27bn and revitalising the AOL operation.