NEW YORK (Time Magazine) -
A former top AOL official whose unit created complex online advertising deals now under investigation by federal regulators has testified that he can't remember key details surrounding one of the transactions or the disciplining of a key subordinate.
Time (which, like CNN/Money, is owned by AOL Time Warner) has obtained a copy of a deposition given to the Securities and Exchange Commission by David Colburn, former head of AOL's business affairs unit. It is the first documentary account to surface in the SEC's investigation of the company's accounting practices. The company said last fall it had improperly booked $190 million as advertising revenue at its AOL division.
|David Colburn was head of AOL's business affairs unit.
AOL Time Warner held its annual meeting Friday, where top brass heard from shareholders distressed about the government probe, the company's business prospects and the price of its shares, down more than 70 percent since AOL and Time Warner merged in January 2001.
Colburn's deposition, given last summer when he was still employed by AOL and represented by company lawyers, centered on Purchase Pro.com, a Las Vegas software vendor. AOL had complex commerce and advertising relationships with Purchase Pro and Homestore.com, an online real estate company. The SEC wants to know whether those companies and AOL created deals in which each paid for services from the other to inflate revenues, a practice known as "round-tripping."
Purchase Pro declared bankruptcy, and its assets were acquired by Perfect Commerce Inc. Four former Homestore executives pleaded guilty to fraud in connection with the AOL deals. Homestore, now known as Homestore Inc., is not a target of the government's probe due to the cooperation of its new management and board, a company regulatory filing said. An AOL Time Warner spokesman said that his company "is continuing our efforts to cooperate with the SEC and their investigation."
Colburn left the company under pressure last August. By then, his Business Affairs Group had become a lightning rod for some executives of the old Time Warner, who disliked the New Economy "cowboys" from the old AOL. Indeed, Colburn favored cowboy boots with his pinstripes.
In his testimony Colburn, an intense, detail-obsessed lawyer-turned-dealmaker, said he couldn't remember key elements of the Purchase Pro deal. In one case, he testified that he couldn't recall details of an important meeting he attended on the deal. According to a veteran lawyer and longtime expert on the SEC who examined the 117-page deposition at TIME's request, the document makes Colburn appear "well-coached" and "largely unresponsive" to SEC probing.
Colburn was able to offer more detail when the questioning turned to his concern about a subordinate, Eric Keller, who was involved in the Purchase Pro and Homestore deals. Keller was eventually put on leave and then ousted by AOL in 2001.
In his deposition, Colburn described a conversation he had with Joe Ripp, then AOL's chief financial officer and now the vice-chairman of the AOL division, and Keller. Colburn said he had "concern," which was shared by other "senior executives," that Keller was "not fully forthcoming" about a $12.2 million AOL transaction with Purchase Pro. Not long after that conversation, Keller was placed on leave. Colburn and a human resource manager notified Keller, but despite prodding from an SEC lawyer, Colburn testified that he couldn't recall details of that conversation.
Keller has also given depositions to the SEC, none of which are public.
Colburn described Keller as, "the kind of person that you sort of had to dig information out of. So on some occasions, more than once, if you didn't ask the exact right question, you might not get the information you needed. "
After Keller left AOL, senior AOL executive Ted Leonsis, owner of the Washington Capitals hockey team, hired Keller as a consultant. Colburn testified that Leonsis contacted him about Keller before making the hire. "Implicit in his (Leonsis') question, you know," said Colburn, was "was there something I should be telling him that would cause him not to hire (Keller), and I just said I didn't have a problem..."
Leonsis later ended his ties to Keller on the advice of an AOL attorney. AOL and Leonsis declined comment, but he has said in the past that he was not aware of the circumstances of Keller's departure from AOL -- although it was the subject of numerous press reports -- and that he was just trying to help out Keller, a friend.
Neither the SEC nor the Justice Department, which is also investigating AOL Time Warner's accounting, has filed any complaint against Colburn or Keller. Colburn, Keller and their lawyers declined to discuss the case with Time.
In addition to the Purchase Pro and Homestore deals, the SEC is reportedly looking into other advertising deals worth more than $500 million. The company has said that SEC investigations could delay the planned spin-off of its cable-TV unit, a step considered crucial to reducing its more than $26 billion in debt.
The company faces multiple class action shareholder lawsuits, including one that alleges insider trading by Chairman and CEO Richard Parsons, Steve Case, who stepped down under pressure as chairman, former Vice-Chairman Ted Turner, former CEO Gerald Levin and former co-Chief Operating Officer Robert Pittman.