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CNN Live Today

SEC Probes AOL Time Warner

Aired July 25, 2002 - 12:10   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: An SEC inquiry into the accounting practices of AOL Time Warner, the parent company of CNN, is adding to investor sentiment on Wall Street. The probe centers around the battered media giant's online division.

CNN financial correspondent, Jennifer Rogers, joins us now from Los Angeles.

Jen -- how did this all of this come about?

JEN ROGERS, CNN FINANCIAL NEWS CORRESPONDENT: Well, yesterday on the conference call when the company was reporting their second quarter earnings, CEO Dick Parsons basically just told Wall Street that after a "Washington Post" article, the SEC had alerted AOL Time Warner that they had started an informal inquiry into some accounting practices. And this was following a "Washington Post" article.

But it turns out that Dick Parsons, the CEO, they had been in communication with "The Washington Post" before the articles came out, knew they were coming out, and said, look, we stand by the accounting, but why don't we call the SEC, give them a heads-up, say, we know this is coming out, if you have questions, we are willing to cooperate with you.

After the articles came out, the SEC did say, look, we're going to start a fact-finding inquiry. AOL says, we stand by the accounting, our auditors stand by the accounting, and they say they are going to cooperate with the SEC.

PHILLIPS: All right, so the SEC is now looking into AOL accounting. What exactly do investigators do from here?

ROGERS: Well, this is an informal inquiry, so right now, the SEC is very tight-lipped. The SEC does not say anything to anybody really about their informal inquiries, because you can imagine, if they did every time they started one up, we could see what happens to AOL stock today, that could be happening to other stocks.

So it's an informal inquiry. They can interview people. They can look through documents and look through records. They don't have subpoena power. What would have to happen is a formal investigation would have to be started. They would then have subpoena power. Then, from that, they could take it to the commission. If the commission thought it merited it, then there could be some charges, or they can try and have some sort of administrative settlement.

But again, this is just at the very beginning. Lots of these are started and really never go anywhere. So this is just an informal inquiry at this point.

PHILLIPS: All right, let's talk about the company's earning, and also if you think the company is healthy.

ROGERS: Well, right now, the earnings have been completely overshadowed by this SEC news. But really, talking to people on Wall Street, the company did pretty well. The traditional entertainment names that AOL Time Warner owns, they did really well.

What sticks out like a sore thumb is the AOL online unit, and it is not doing well. It is being hit by subscriber growth that isn't exactly what Wall Street was looking for. And also by declines in advertising that are much worse than Wall Street was looking for.

So obviously, that continues to have problems, but Dick Parsons, the CEO, said last night, you know, frankly we did better than we thought we were going to do for the quarter overall. So the traditional businesses continue to go well, but they are still having problems with the online business, and they obviously have a lot of issues on their plate, especially with the SEC inquiry right now.

PHILLIPS: Jen, real quickly before we let you go, what's the talk with regard to the question, should this merger have ever happened?

ROGERS: Well, that is a current and very hot topic on Wall Street, and the irony here is obviously that the AOL unit, AOL which came in and basically bought up Time Warner, is the real problem right now. So being a Monday morning quarterback analyst on Wall Street, it's not looking too highly on the merger right now as it stands. But it's hard to look back with 20/20 hindsight right now.

PHILLIPS: Yes, no kidding, got to keep going forward. Jen Rogers, thank you so much.

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