SEC seen readying AOL ad charges

WASHINGTON -- The Securities and Exchange Commission is preparing documents alleging that Time Warner Inc. booked more than $400 million in questionable advertising revenue following the company's January 2001 merger with America Online Inc., according to people familiar with the investigation.

The SEC plans to send a formal letter of notification to Time Warner by early summer, signaling that investigators believe they have assembled enough evidence to support their conclusions about wrongdoing. The most prominent single item in the Time Warner matter is a suspicious $400 million ad deal with the German media giant Bertelsmann AG, federal sources said.

Bertelsmann is part of a broader case that SEC officials are putting together alleging that Time Warner and America Online misled investors about the true financial health of the online unit by pumping up ad revenue in numerous deals, and by inflating AOL subscriber numbers, sources said.

After the company receives formal notification of allegations through a letter known as a Wells notice, Time Warner would have a period of weeks to review it, respond in writing and meet in person. Afterward, the SEC and the company could negotiate a settlement or remain at odds over all or some issues. Then the SEC staff would submit its recommendations for enforcement action against Time Warner to the agency's commissioners for approval.

In 2002 the SEC and the Justice Department began looking into the way AOL booked its advertising revenue. Time Warner officials have blamed the questionable practices largely on AOL, saying that Time Warner had begun cleaning up the online firm and was cooperating with the probe.