AOL faces new probe over Wembley money

The US Justice Department has launched a probe into accounting practices at AOL Time Warner in part linked to its dealings with Wembley plc, it emerged today.

American prosecutors are working with the Securities and Exchange Commission, which is already investigating the world’s biggest media company over claims that it inflated the advertising revenue for its America Online division.

If the Justice Department probe turns into a criminal proceeding, it would allow the prosecutors wide powers to subpoena documents, compel testimony and gather other evidence.

One of the deals being examined by the SEC involves AOL allegedly turning a £14.4m legal settlement with Wembley 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 claim AOL instead asked Wembley to buy £14.44m in advertising for its new greyhound racing venture, 24dogs.com.

Wembley has said the settlement with AOL was resolved in 1999 after it paid the company £12.5 million. How AOL booked the money was not up to Wembley, it said.

The British company also owns six UK greyhound tracks and a 50-acre site near Wembley stadium, which includes Wembley Arena. In the US it operates a Rhode Island casino and several racetracks. It sold Wembley Stadium three years ago.

The Washington Post also accused America Online of other unconventional accounting practises, including counting revenue from adverts sold on behalf of EBay to boost its sales figures by millions of pounds.

AOL Time Warner said it was cooperating with the Justice Department and the SEC, and that it stood by its accounting practices, which have been upheld by its auditor Ernst and Young.

“In the current environment, when anyone raises a question about accounting, it’s not surprising that the relevant government agencies will want to look into the facts,” the company said in a statement.

The Justice Department 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 shares fell again by 7% today in heavy trading on the New York Stock Exchange.

AOL Time Warner’s number two, Bob Pittman, resigned a fortnight ago 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.