SEC Questions AOL’s Accounting of Bertelsmann Ad Deal

NEW YORK The Securities and Exchange Commission is examining transactions between AOL Time Warner’s America Online Internet unit and Bertelsmann A.G., which could result in further financial restatements.

New York-based AOL Time Warner has already restated $190 million in ad revenue, an outcome of an internal review.

According to AOL Time Warner’s annual report filed Friday, the SEC has expressed that at least some of the $400 million in advertising purchased by Bertelsmann since 2001 should not be recognized as ad revenue. Instead, the SEC believes that a portion should be treated as a reduction in the purchase price paid by AOL Time Warner for Bertelsmann’s interest in AOL Europe.

During the AOL Europe negotiations in 2001, AOL Time Warner guaranteed to pay out cash for Bertelsmann’s 50 percent stake in AOL Europe. In exchange for the cash guarantee, which AOL valued at between $400-800 million, Bertelsmann agreed to become a “significant purchaser of advertising.”

The SEC has also informed the company that it is continuing to investigate a range of transactions principally involving the America Online division. Late last year, the SEC and Department of Justice started investigating the accounting and disclosure practices of transactions at America Online.

Separately, Dulles, Va.-based America Online this week will roll out a new, enhanced AOL Broadband service, which among other things will leverage AOL Time Warner content to entice at-home broadband users to pay AOL $14.95 per month in addition to fees to their broadband ISP. For the full story, see Catharine P. Taylor’s story on