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Veritas Gets SEC Subpoenas in AOL Investigation

November 15, 2002|Edmund Sanders | Times Staff Writer

The government's investigation of accounting practices at AOL Time Warner Inc.'s America Online unit has triggered subpoenas to California technology company Veritas Software Corp.

Mountain View-based Veritas said in a quarterly financial filing Thursday that it received subpoenas from the Securities and Exchange Commission "relating to transactions we entered into with AOL in September of 2000."

The targeted transactions involve a $50-million Veritas software sale to AOL and a $20-million purchase of advertising from AOL, Veritas said.

A Veritas spokeswoman said the subpoenas were received in August. The company said it was cooperating in the probe and also was reviewing its own accounting treatment of the transactions.

AOL Time Warner said in July that the SEC and the U.S. attorney's office in Alexandria, Va., had launched investigations after disclosures that the company's Internet unit improperly accounted for some of its advertising deals with several companies.

Among other things, investigators are looking at whether AOL used barter deals to inflate its revenue by exchanging advertising or purchase contracts of comparable value with outside companies during the dot-com craze.

AOL said last month that it would reduce its revenue for the last two years by $190 million because of accounting questions. But the company has not identified any of the companies or deals involved.

Criminal investigators are paying particular attention to some of the ad deals handled by former AOL managers David Colburn and Eric Keller, both of whom worked in the online company's now-defunct business affairs unit.

AOL fired both men after internal investigations turned up irregularities.

AOL officials have told investigators that they believe Keller may have cut side deals with some outside companies to help them report higher earnings or ad revenue. The companies include Las Vegas-based Purchase Pro and Westlake Village-based Homestore Inc., according to sources close to the investigation.

AOL Time Warner said in a federal filing Thursday that it expected the government investigations to continue into next year.

In its filing, Veritas said the software sale to AOL resulted in the recognition of $37 million in revenue in the fourth quarter of 2000, with the remaining $13 million expected to be recognized over a three-year period.

The $20 million of advertising expense was recorded "over the five quarters during which AOL provided advertising services to us, beginning in the fourth quarter of 2000 and ending in the fourth quarter of 2001," Veritas said.

News of the Veritas filing was reported after markets closed. Veritas shares rose $1.45 to $18.25 in regular Nasdaq trading. AOL Time Warner shares rose 8 cents to $15.30 in regular New York Stock Exchange trading.

Associated Press and Bloomberg News were used in compiling this report.

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