Time Warner settles fraud charges over online ads

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purchased. The SEC further alleged that AOL tried to conceal these transactions by booking them as two or more separate agreements, "conducted at arm's length."

Homestore and PurchasePro.com were some of the publicly traded companies that allegedly engaged in these transactions.

Securities regulators also claim that AOL did not consolidate its financial results with AOL Europe, a joint venture it owned with European media giant Bertelsmann AG. When AOL received direct control of AOL Europe's operations and assets, it should have bundled the financial results of both entities together, according to the SEC.

As a result of keeping the books separate, AOL misstated its own net income in 2000 and understated its net losses the following year, according to the SEC. The company also overstated its operating income during 2000 and 2001, the SEC maintained.

In addition to these issues with AOL Europe, AOL allegedly inflated its revenue by $400 million when it restructured its purchase agreement for AOL Europe with Bertelsmann. Rather than take $400 million in cash and book it as a restructuring for the agreement, AOL allegedly asked Bertelsmann to pay that amount as advertising to the online giant - thereby boosting its advertising revenues.

Separately, the SEC has settled charges with company Chief Financial Officer Wayne Pace, Controller James W. Barge and Deputy Controller Pascal Desroches. The three were charged with "causing violations of the reporting provisions of the federal securities laws."

According to the SEC, they have consented, without admitting or denying the allegations, to a cease-and-desist order stating that they caused reporting violations by the company "based on their roles in accounting for $400 million paid to the company by Bertelsmann AG in two sets of transactions."

Despite the settlement with its finance executives, Parsons said in a statement: "We have confidence in our top financial officers, and we're pleased that they will continue to serve our company in their current positions."

The SEC said it will continue its investigation into Time Warner's financial practices.