Shares in AOL Time Warner plunge

Shares in the world’s largest media company plunged today as it faced a probe into its accounting practices in part linked to its dealings with Wembley plc.

US financial regulators are investigating allegations that AOL Time Warner inflated the advertising revenue for its America Online division.

The media giant’s stock fell as much as 21% on Wall Street after chief executive Richard Parsons revealed the fact finding inquiry last night.

One of the deals being examined by the Securities and Exchange Commission involves AOL allegedly turning a £14.4m (€22.7m) legal settlement with the US and UK track-based gaming company Wembley plc into an advertising sales deal.

AOL inherited the settlement from MovieFone, a telephone cinema ticket booking service it acquired four years ago.

But the Washington Post alleges AOL instead asked Wembley, which owns Wembley Arena and Conference Centre, in north London, to buy £14.44m (€22.7m) in advertising for its new greyhound racing venture, 24dogs.com.

The paper said when the deal was agreed AOL executives celebrated by playing the Baha Men hit "Who Let the Dogs Out".

A spokesman for Wembley plc, which also owns Catford and Wimbledon dog racing tracks, said the settlement with AOL was resolved in 1999 after it paid the company £12.5m (€19.7m). How AOL booked the money was not up to Wembley, he said.

The reason for the reduction in the initial settlement was also kept confidential.

The Post also alleged that America Online counted revenue from adverts sold on behalf of Ebay to boost its sales figures by millions of pounds.

Mr Parsons denied any wrongdoing and said the company would "cooperate fully" with the SEC.

"In the current environment, any such allegations will necessarily and appropriately draw inquiry from the appropriate regulatory authorities, even where, as here, they are without merit," he said.

AOL’s lawyer told the Post it had handled the Wembley and Ticketmaster deals appropriately, adding it was common to resolve litigation by creating or amending a business relationship.

The SEC probe is the latest blow to AOL Time Warner which has seen its shares lose more than 75% of their value since the two companies merged in January 2001.

The company’s number two, Bob Pittman, resigned last week as part of a management shake-up.

The investigation also follows recent accounting scandals involving telecom giant WorldCom and office equipment firm Xerox which have shaken investor confidence.