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Ex-Homestore exex to aid Net ad probe

Feds investigating netco-AOL deal

NEW YORK — The glare of the spotlight could increase on AOL Time Warner as three former executives of besieged Web shop Homestore.com agreed to aid federal investigators in their probe of the online retailer and its business partners as part of a plea bargain in a fraud case.

Federal prosecutors say so-called round-trip ad deals with two media companies inflated Homestore’s advertising revenue by $46 million in 2001. There is widespread speculation that AOL Time Warner is one of the companies involved in the Homestore dealings, but there is as yet no evidence that laws were violated.

When announcing the Homestore pleas in Washington, Attorney General John Ashcroft would not say what role America Online played in the Homestore matter.

Insiders said AOL Time Warner has been cooperating with the Securities & Exchange Commission probe of Homestore since January.

According to a Wall Street Journal report, Homestore purchased $50 million in software and goods from various vendors, whom it then required to buy some $45 million in ads from AOL. In turn, the indicted execs say that under the terms of its arrangement, AOL was obliged to buy ads on Homestore in exchange for the referrals. The $35 million in “ad sales” from AOL was illegally recognized as revenue.

The SEC launched a probe into AOL accounting practices this summer. Specifically, the agency wants to know if the Internet company counted in-kind ad services as revenue, thus inflating the books. Insiders said the SEC is looking at a number of ad deals, including those with Homestore.

Soon after the SEC began its investigation, AOL TW topper Richard Parsons announced that the conglom had launched a probe into three questionable ad deals struck by AOL and had alerted the SEC. Homestore was not involved in any of those.

On Wednesday, AOL Time Warner spokesman John Buckley reiterated that AOL’s dealings with Homestore were accounted for properly and that Homestore’s isn’t one of the three ad deals under internal review.

“We have been cooperating in the investigation into AOL’s deal-making. We view the Homestore.com complaints as separate from that investigation,” Buckley said.

(Pamela McClintock in Washington contributed to this report.)

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