Return to Transcripts main page

CNN Live Today

AOL Time Warner under Justice Department Scrutiny

Aired July 31, 2002 - 11:39   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.
LEON HARRIS, CNN ANCHOR: We turn to this story that is hitting close to home here at CNN. The Justice Department is taking a look now at accounting practices at AOL Time Warner.

CNN Financial Correspondent Bruce Francis joins us now from New York with more on that -- hello, Bruce.

BRUCE FRANCIS, CNN FINANCIAL CORRESPONDENT: Good morning, Leon. Indeed, CNN confirms that the Department of Justice is conducting a preliminary investigation into certain accounting practices that were done at AOL Time Warner's America Online unit. That, of course, the unit that runs the online service that millions of Americans use. Of course, AOL Time Warner is the parent of CNN.

Now, this investigation presumably inspired by a series of articles in the "Washington Post" just a couple of weeks ago that describe some deals that were done at the America Online unit as America Online was preparing to take over Time Warner and become AOL Time Warner. They involve warrants that were issued by another company, called purchase prone (ph). Warrants are a financial instrument that allow you to purchase the stock of a company at a certain price. Now AOL booked the profits from those warrants as certainly as advertising revenue, and making the performance of their unit look a little better than it was. However, AOL says that they are standing by their accounting treatment of this, and their auditor Ernst & Young says that they think that was fine as well.

Let's take a look at the statement that AOL Time Warner is issuing today. They are saying that "in the current environment, when anyone raises a question about accounting, it is not surprising that the relevant government agencies will want to look into the facts," and they say that "we will cooperate with the Department of Justice."

Now, AOL stock is down about 60 percent, year to date as Wall Street and investors have expressed concern about the slower growth of advertising at the America Online unit, as well as advertising overall. And, of course, there have been big changes at the top of AOL Time Warner, and it is a situation, Leon, that we are going to continue to watch.

HARRIS: Yes, well, you bring up those changes in management that have been in the news of late. Let me ask you about this, is there any talk yet about who may be responsible for this creative accounting? FRANCIS: Well, Bob Pittman, who was the head of the Online unit at the time that these transactions were made, that he was certainly overall responsible for it. He is the executive who recently resigned in a management shakeup at AOL Time Warner. So, investigators are certainly going to want to find out how far this does go. Now, it is not clear that any laws have been broken. The SEC is also investigating this story, but it is not clear if AOL Time Warner has done something wrong here, done something that was just pushing the envelope, or exactly what. So that is definitely something we are going to want to find out.

HARRIS: Yes. Good deal. Thanks, Bruce. Bruce Francis reporting for us from our New York bureau. Appreciate it.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com