SEC rains on AOL TW

Probe looks into dubious 'round-trip' ad deals

AOL Time Warner will have more than first quarter earnings questions on its hands when it reports financial results today — the likelihood of a continuing SEC investigation dampened the bittersweet cheer of pocketing $1.23 billion in cash for its share of Comedy Central.

Reports surfaced Tuesday that the Securities and Exchange Commission had unearthed another handful of less-than-kosher “round-trip” advertising deals at AOL in its now eight-month-long investigation into the company’s accounting practices.

A $100 million transaction with job search site Monster.com in 1999 is among the latest profitless “round trip” ad deals to be scrutinized by the SEC and was not among the $200 million worth of contested sales AOL TW has already acknowledged it will restate. Smaller deals also now being examined include a $9.6 million deal with medical site Drkoop.com where a termination fee reportedly was improperly booked as ad sales, and a $10 million deal with Catalina Marketing.

Also on Tuesday, a U.S. Bankruptcy Court judge in Manhattan signed an order that authorized WorldCom and AOL Time Warner to settle amounts owed to each other under existing contracts. AOL Time Warner has agreed to pay just under $16 million for amounts owed under contracts before WorldCom filed for bankruptcy July 21.

In the run-up to AOL’s first quarter results announcement today, rumors about other imminent deals for sports teams and possibly the book publishing division have also been running high.

The company would not comment on reports that departing vice chairman Ted Turner is poised to join a consortium of Turner Broadcasting execs to join a bid for Major League Baseball’s Atlanta Braves, the NBA’s Hawks and the NHL’s Thrashers. Turner Sports Teams chief Terry McGuirk and Former Milwaukee Braves owner Bill Bartholomay are behind the effort.

Turner has long harbored interest in buying back the teams and could be in competition with other reported bids by Dave Checketts and George Soros, and David McDavid.

Speaking on the sale of its stake in Comedy Central to Viacom, CEO Richard Parsons said: “This transaction, as well as the sale of our investment in GM Hughes earlier this year, demonstrates our commitment to the company’s previously announced debt reduction goals. Our expected strong free cash flow generation and favorable prospects for future sales of other non-strategic assets give us confidence that we can and will achieve our debt reduction targets.”

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