U. of Calif. sez AOL exex used tricks, insider trades
NEW YORK — Shareholder wrath against AOL Time Warner is getting more vicious by the day, as the University of California and Amalgamated Bank’s Longview Collective Investment Fund become the latest, and so far most virulent, shareholder groups to sue the media conglom for its past financial misdeeds.
Filed in Los Angeles Superior Court Monday, the suit charges former chairman Steve Case, CEO Richard Parsons, vice chairman Ted Turner and former CEO Gerald Levin of insider trading while using “tricks, contrivances and bogus transactions” to inflate company stock. The lawsuit also names former COO Bob Pittman for insider trading transgressions, for which it also holds the company itself, its auditor Ernst & Young and bankers Morgan Stanley and Citibank Salomon Smith Barney accountable.
This latest suit brings to 32 the number of class action lawsuits currently filed against the company.
AOL will only say that it intends to defend itself from these lawsuits and continues to debate with the SEC and Justice Department an array of accounting discrepancies currently under review.
In a 184-page complaint lodged by law firm Milberg Weiss Bershad Hynes & Lerach, UC claims that immediately before and after the Jan. 2001 transaction, top execs on both the AOL and Time Warner side, inflated the value of AOL stock while liquidating shares worth $935 million. And while the stock was still at an “artificially high level,” AOL and Time Warner executives exploited a “change of control” provision to cash in options on an accelerated basis. Some 35 million shares valued at $1.7 billion were cashed in for the five top AOL execs alone.
UC says its holding has lost $450 million in value since 2001, while The Long View Collective Investment Fund cited losses of $56 million.
The Milberg Weiss-supported suit accuses Case and Pittman and current Vice Chairman Kenneth Novack specifically for covering up the deterioration in growth of its core analog subscription business and inflating financial results by more than $1 billion between 2000 and 2001 to help push through the merger. AOL admits that it may have overstated earnings by up to $600 million.
The aggrieved shareholder group claims the overstatement, which is also under review by the SEC and Justice Department as part of its ongoing investigation into AOL TW accounting procedures, was a “contrivance intended to benefit an unscrupulous few.”
The SEC has given no timetable for a report on its inquiry into AOL’s accounting. And in its recent filing, AOL TW acknowledged that there is a risk that the SEC probe could expand beyond the AOL division and into traditional Time Warner businesses.
AOL TW stock, nonetheless, appeared immune to the threat. Shares gained 21¢ to close at $12.51 Monday.