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AOL Paying $2.65B To Settle Class-Action

By: David Utter

A shareholder suit over the ill-fated AOL-Time Warner merger ends with a massive settlement of claims that AOL inflated ad revenue between 1998 and 2002.

Accounting firm Ernst & Young will pay $100 million of the settlement, while Time Warner (TWX) picks up the rest of the $2.65 billion tab, as a federal judge gave final approval to the settlement tentatively approved in September 2005.

Since September, negotiations between the two sides continued under a court-appointed special master, AP reported. US District Judge Shirley Wohl Kram said the settlement was "all the more impressive" considering how the sides disputed the existence of damages.

The Minnesota State Board of Investment lost nearly a quarter of a billion dollars as a result of the merger. Judge Kram noted that it was clear members of the class action would not recover their entire loss.

This settlement received the "overwhelming support" of the class, with some 600,000 claimants, the report noted. Time Warner has not yet commented on the settlement.

Last March, Time Warner settled with the SEC over an investigation of its accounting practices. Without admitting or denying wrongdoing, Time Warner paid a $300 million penalty; advertising revenues proved the focus of that investigation, as the settlement required the company to make some changes to its financials:

Adjust its historical accounting for advertising revenues in certain transactions with Bertelsmann, A.G., that were improperly or prematurely recognized primarily in the second half of 2000, during 2001 and during 2002; as well as adjust its historical accounting for transactions involving three other AOL customers where there were advertising revenues recognized in the second half of 2000 and during 2001.

Time Warner had to restate financial results for each of the years ended December 31, 2000 through December 31, 2003, as well as the Annual Report for the year ended December 31, 2004, which the company filed with the SEC on March 11, 2005.


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