Eight Former AOL Executives Named in SEC Fraud Suit

21 May 2008

NEW YORK: Eight former senior AOL executives have been named in $1 billion fraud charges brought by the US Securities and Exchange Commission.

The accusations relate to a scheme in which AOL allegedly created false deals to overstate its revenues, giving cash to third parties to 'buy' online ads they neither wanted nor needed. 

This effectively inflated AOL's worth by more than $1bn during the run-up to  - and aftermath of - its merger with Time Warner in January 2001.

Four of the eight – former AOL cfo John Michael Kelly; Steven Rindner, ex-senior executive for business affairs; erstwhile AOL cfo Joseph Ripp; and quondam head of accounting policy Mark Wovsaniker – were charged in New York district court.

The remaining defendants, who include AOL's high-profile former deal maker David Colburn, face trial in federal court in New York. Although not yet adjudged guilty, they have agreed to pay a combined sum of $8.1 million (€5.22m; £4.16m) to settle the suit.

Accuses SEC associate director of enforcement Scott Friestad: "This is one of the most egregious accounting frauds in recent memory."

Justifying the length of time taken to complete the investigation (complained of by the defendants'  attorneys) Friestad said: "As the problems unfolded, it expanded the universe of transactions that we needed to look at."

Data sourced from Wall Street Journal Online; additional content by WARC staff