US Justice Department launches investigation of AOL's accounts

The troubles at AOL Time Warner deepened still further yesterday after the company confirmed that the US Justice Department was launching its own investigation into reports that its AOL online unit may have cooked some of its accounting numbers.

The troubles at AOL Time Warner deepened still further yesterday after the company confirmed that the US Justice Department was launching its own investigation into reports that its AOL online unit may have cooked some of its accounting numbers.

While the struggling media giant is already the focus of an inquiry by the Securities and Exchange Commission, news that the federal government was entering the fray ­ raising the possibility of eventual criminal charges ­ gave fresh pain to its already battered stock.

On Wall Street, shares in AOL Time Warner fell 8 per cent to end at $11.50. It only added to the stress of investors, who have watched almost helplessly as the group's stock has dived 72 per cent in the last 12 months.

"While from a valuation standpoint we think that the stock remains inexpensive on virtually all metrics, we prefer to remain on the sidelines, given the uncertainty an investigation such as this creates and the overhang for the company," said Jessica Reif Cohen, an analyst at Merrill Lynch.

The spotlight settled on AOL Time Warner earlier this month when The Washington Post said it had found instances of "unconventional" booking of revenues by AOL between July 2000 and March 2002. For some of that time the company was trying to seal its purchase of Time Warner, which partly depended on keeping its stock valuation high.

Officials at the Justice Department would not comment on the focus of its inquiry. However, the Post said it had looked at the way AOL had booked transactions that included selling advertising to the UK entertainment company Wembley to settle a legal dispute and reporting revenue for spots sold on behalf of eBay, the online auctions company.

Confirming the new inquiry, the company tried to downplay its importance. "In the current environment, when anyone raises a question about accounting, it's not surprising that the relevant government agencies will want to look into the facts," it said.

But AOL Time Warner hardly needs the inquiries given all its other difficulties. It is in the midst of a management upheaval, after the ousting of its number two executive Robert Pittman. He had been trying to rekindle revenue at AOL. It was Mr Pittman, also, who was responsible for AOL during the period now under investigation. The company has said that it is co-operating fully with the inquiries and is confident that all its dealings were "appropriate and in accordance with generally accepted accounting principles".