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Bank Seeks Lead Status in AOL Suits

Litigation: More than a dozen complaints have been filed, alleging that the media company used improper accounting to boost its share price.

September 17, 2002|THOMAS S. MULLIGAN | TIMES STAFF WRITER

NEW YORK — Amalgamated Bank of New York applied Monday for lead-plaintiff status in shareholder litigation accusing AOL Time Warner Inc. of fleecing investors by inflating its sales and revenue through phony accounting and misleading financial statements.

Monday was the deadline for filing motions with Judge Shirley Wohl Kram in U.S. District Court in Manhattan to seek lead position in the case.

It could not be learned Monday how many others met the deadline, but more than a dozen shareholder lawsuits have been filed. Typically, such lawsuits are consolidated and the lead plaintiff takes control over legal strategy.

Amalgamated, union-owned and an activist in shareholder-rights issues, says it has lost more than $56 million on its original investments in Time Warner Inc. and America Online Inc., which merged in early 2001 to form the huge media company. Since the merger, the total value of AOL Time Warner stock has declined by about $125 billion.

"It's just a flat-out travesty for shareholders, and we feel duped," said Ron Luraschi, senior vice president of Amalgamated, which is owned by UNITE, the large New York-based garment-workers union.

AOL Time Warner declined to comment on the litigation, spokeswoman Tricia Primrose said.

Amalgamated's lawyer is William Lerach of Milberg Weiss Bershad Hynes & Lerach. The firm dominates the field of shareholder litigation and represents the University of California Regents, lead plaintiffs in litigation against Enron Corp.

Amalgamated's case will build on allegations in a lawsuit that Lerach filed in July on behalf of an individual shareholder, Steven Schmalz. That complaint alleges that in the year after the merger was announced but before it closed, America Online artificially inflated its sales and profit by improperly booking revenue from certain advertising deals.

The phantom gains kept AOL's stock price up during the crucial period while the deal was pending and misled investors about the company's prospects, the complaint says.

AOL Time Warner, which is under investigation by the Justice Department and Securities and Exchange Commission, has admitted improperly recording $49 million in advertising revenue from three America Online transactions that took place before the merger was completed.

Plaintiffs against AOL Time Warner have one advantage that those who have filed suit against Enron Corp. do not, Lerach said in an interview Monday evening: Because the merger involved a new issuance of shares, investors under federal law do not have to prove fraud to recover damages, he said. All that is necessary is to show that there were material misstatements in AOL Time Warner's financial reports and the proxy and registration statements associated with the merger, he said.

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