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Time Warner in $2.5B fraud settlement
Media company, auditor to pay in securities litigation; company seeks to avoid further costs.
August 3, 2005: 12:23 PM EDT

NEW YORK (CNN/Money) - Time Warner Inc. and its auditor have reached a $2.5 billion settlement to securities fraud litigation, according to statements Wednesday from the world's largest media company and the lead attorney for the plaintiff.

Minneapolis law firm Heins Mills & Olson said that Time Warner (Research) will pay $2.4 billion, while its auditor, Ernst & Young, is to pay $100 million. The money will be paid to shareholders who purchased or acquired shares of America Online or Time Warner between Jan. 27, 1999 and Aug. 27, 2002.

Time Warner, the owner of CNN/Money, said it has increased its reserves related to the litigation by $3 billion. Those reserves resulted in the company reporting its first quarterly loss since the fourth quarter of 2002 Wednesday.

The company has already announced a separate $300 million settlement of civil charges filed by the Securities and Exchange Commission as well as a $210 million settlement of a Justice Department probe over charges that AOL improperly inflated its advertising revenue beginning in mid-2000 and inflated its Internet subscriber numbers in 2001.

The company had previously announced a $500 million increase in its legal reserves in its third quarter 2004 earnings release.

"Reaching an agreement in principle to settle this securities litigation and reserving for it and all other related matters mark important steps toward putting these matters behind us," Time Warner CEO Richard Parsons said in a statement. "By working to resolve these issues now, we're aiming to avoid the costs, risks and distractions of protracted litigation. Even after considering the reserve, our balance sheet remains strong."

The settlement is among the top five securities fraud class-action settlements ever and is the second largest in history paid by the issuer of a security and its auditor, according to the plaintiff's attorney. There are millions of shareholders who will benefit from the settlement, according to the attorney.

AOL announced a deal to purchase Time Warner shares in January 2000, a deal that closed in January 2001.

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