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AOL settles SEC civil suit
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May 15, 2000: 2:56 p.m. ET
Largest U.S. Internet provider to pay $3.5M for financial reporting violations
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NEW YORK (CNNfn) - America Online Inc. agreed Monday to pay the government $3.5 million to settle a civil lawsuit charging the nation's largest Internet service provider with financial reporting violations regarding advertising costs.
The suit, brought by the U.S. Securities and Exchange Commission, charged Dulles, Va.-based AOL with recording advertising charges as an asset rather than a charge in financial statements between 1995 and 1996, the SEC said.
AOL reported a profit for six of eight quarters in fiscal years 1995 and 1996, rather than the losses it would have reported had the advertising costs been reported as incurred.
The advertising charges were related to the company's efforts to acquire new subscribers to its Internet service.
 "This action reflects the commission's close scrutiny of accounting practices in the technology industry to make certain that the financial disclosure of companies in this area reflect present reality," said Richard Walker, director of enforcement for the SEC.
AOL, which did not admit or deny the charges, also agreed to an administrative order preventing it from further securities law violations.
In a company statement, AOL said it had abandoned the accounting practices that led to the suit more than 3-1/2 years ago and incurred a one-time $385 million charge in the first quarter of fiscal 1997 to reflect the advertising charges it incurred in 1995 and 1996.
"The agreement with SEC calls for the company to treat those costs as expenses in the period during which they were incurred. As a result, America Online will restate its historical results from 1995 to 1997 to reflect that changed treatment," the company said. "Under the agreement, America Online is not admitting any wrongdoing, and will pay a penalty to the SEC."
With nearly $5 billion in revenue last year, AOL announced plans in January to merge with Time Warner Inc., the parent company of CNNfn, in a $182 billion deal, the largest merger in history at the time of its announcement.
Shares of AOL (AOL: Research, Estimates) rose 2-1/16 to 57-7/16 in afternoon trading Monday. 
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