TGAM STORY

SEC charges eight former AOL Time Warner executives

KAREY WUTKOWSKI,  Reuters

WASHINGTON — The U.S. Securities and Exchange Commission Monday charged eight former executives of AOL Time Warner, now known as Time Warner Inc., in a fraudulent scheme that overstated company advertising revenue by more than $1-billion (U.S.).

Four of the defendants settled with the SEC and the other four are facing fraud-related charges in federal court in New York.

The former executives participated in a scheme from mid-2000 to mid-2002 to artificially inflate the company's reported online advertising revenue, the SEC said in a statement. Online advertising revenue was a key measure analysts and investors used to evaluate the company.

The scheme involved fraudulent transactions in which AOL Time Warner effectively funded its own advertising revenue by giving purchasers the money to buy online advertising that they did not want or need, the SEC said.

The SEC settled charges with David Colburn, former head of the company's business affairs unit; Eric Keller, former senior manager in the business affairs unit; James MacGuidwin, former controller; and Jay Rappaport, former senior manager in the business affairs unit. The four neither admitted nor denied they were guilty of the charges.

As part of their settlements, Mr. Colburn agreed to pay almost $4-million, Mr. Keller almost $1-million, Mr. MacGuidwin $2.4-million, and Mr. Rappaport almost $750,000, the SEC said.

Mr. Colburn and Mr. MacGuidwin were also barred from serving as officers or directors of a public company for 10 years and seven years, respectively.

John Michael Kelly, former chief financial officer of AOL Time Warner; Steven Rindner, former senior executive in the business affairs unit; Joseph Ripp, former chief financial officer of the company's AOL division; and Mark Wovsaniker, former head of accounting policy, are facing fraud-related charges, the SEC said.

The SEC said it is seeking disgorgement of ill-gotten gains and civil monetary penalties from each of them.

“It was a very significant fraud and another instance that shows the commission ... is going to be diligent protecting investors,” said David Frohlich, an assistant director in the SEC's enforcement division.

In 2005, Time Warner agreed to pay $300-million to settle a related SEC case.

Mark Hulkower, an attorney for Mr. Rindner, said his client is disappointed the SEC is pursuing a case against him but looks forward to the opportunity to clear his name.

An attorney for Mr. Kelly did not immediately have a comment about the charges. Attorneys for the other defendants did not immediately return messages seeking comment.