AOL Fined $3.5M for Inaccurate Financials
By Mitchell S. Ostwald
America Online ("AOL") agreed to pay a $3.5 million dollar fine to settle charges that they used improper accounting during the mid 1990's to report profits when it was actually losing money, the Securities and Exchange Commissions ("SEC") announced.
In a civil complaint accompanying the settlement, the SEC alleged that AOL violated securities law by issuing "inaccurate" financial reports during 1994, 1995, and 1996. The accounting practices in question were the subject of an intense debate between corporations, the government and finance professionals during those years. It coincided with a point in time when AOL was a young struggling company and its future prospects were far from clear. Today, AOL is in the process of taking over Time Warner, Inc. and is considered one of the dominant internet companies. While the SEC remained silent during the ongoing debate throughout those years, this filing represents the agency's first public comment on the matter.
It is significant to note that AOL changed its accounting methods after 1996, taking a $385 million dollar charge against earnings.
While agreeing to the settlement, AOL neither admitted nor denied wrongdoing. It accepted a "cease and desist order", promising not to violate financial reporting requirements in the future. It also said it will restate financial results for its 1995 to 1997 fiscal years.
This settlement represents a clear view of SEC Chairman, Arthur Levitt's promises to make publicly traded companies accountable for legitimate disclosure and accounting. While many surmise that had AOL been held accountable years ago, history, as we know it, may be different. Chairman Levitt hopes that these actions will curtail these types of abuses in the future. Thomas Newkirk, Associate Director of Enforcement at the SEC said the SEC action will "put people on notice in the internet and dot.com businesses that we are going to deal vigorously with overly aggressive accounting practices. " While these actions are applauded, some mechanism is clearly needed to speed up the process - four to six years after the fact is too lengthy of a review practice to curtail improper acts.
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