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25 Jul 2002
AOL Time Warner admitted yesterday that it is at the centre of a Securities and Exchange Commission "fact finding" inquiry over a series of transactions that may have improperly boosted its revenue.
As expected in a climate where any suspicion of accountancy malpractice sends investors running for cover, AOL's stock took a 12 per cent dive to $10.05 this morning.
The media giant must now prove that its book keeping is legitimate.
According to a number of articles in the Washington Post AOL allowed a company to buy advertising space instead of paying the arbitration fees from a legal dispute, and sold ads for eBay but booked them as its own revenue.
AOL said that all transactions had been signed off by its accountants, Ernst & Young.
But a number of Wall Street firms, including Goldman Sachs, Salomon Smith Barney and Merrill Lynch, said they would reduce investment ratings on AOL.
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