The Securities and Exchange Commission has expanded its investigation into AOL Time Warner's accounting practices, turning it into one of the largest corporate investigations, according to the Financial Times.
On Wednesday, the media giant's management admitted that three transactions involving its AOL unit and third parties may have been inappropriately recognized as advertising and commerce revenues. The revenues amounted to about $49 million over six quarters.
According to the Financial Times report, investigators are focusing on Michael Kelly, who served as chief financial officer of AOL Time Warner last year until he was mysteriously demoted to chief operating officer of the AOL division.
Kelly was replaced as CFO by Wayne Pace, who certified the company's financial reports on Wednesday, under the SEC's order.
In the past month, AOL has undergone a major management shake-up, with Bob Pittman resigning as chief operating officer. Time veteran Don Logan now heads up the group as chairman of media properties, while Jon Miller was named AOL's chief executive last week.
Grand Jury Questions Charter's Bookkeeping
Charter Communications officials acknowledged on Friday that it has received a grand jury subpoena requesting documents relating to the company's past and present customers as well as its policies and procedures relating to the accounting of various costs.
Charter's management responded in a press release that it would fully cooperate with the subpoena from the U.S. District Attorney's office for the Eastern District of Missouri and believes the issues under investigation are similar to those raised in previously reported class actions pending against the company.
In their defense, officials at the troubled telecom said that they reported in February an increase in reserves for uncollected customer accounts receivable as of December 31, 2001; that they had tightened its collection policy and procedures relating to these marginal customers; and that they expected to remove approximately 120,000 marginal customers from its basic customer account in the first quarter of 2002.
The company reflected the disconnection of 145,000 marginal customers in its latest 10-Q filing with the SEC.
Most Companies Meet Certification Deadline
The SEC says that nearly all of the 697 companies that were ordered to file certified statements about the accuracy of their financials met their August 14 deadline.
More than two dozen companies failed to certify fully or asked for postponements.
The certification requirement affected only companies that operate on calendar years. Altogether 947 of the largest companies must meet the SEC's onetime order by December 2.
Of course, by the end of the year, all 14,000 companies overseen by the SEC—including foreign issuers of debt and equity—must certify their financials, under provisions of the recently signed Sarbanes-Oxley Act, which will become effective by August 29.
The SEC's requirement that 947 companies certify the accuracy of their financial statements is independent of the provision from the Sarbanes-Oxley Act and is a one-shot deal.
A number of law firms reportedly advised clients to start certifying all results on Wednesday even though penalties for failing to comply with Sarbanes-Oxley are still not clear.
Former Tyco CFO Files Suit
Richard Power, who served as CFO of Tyco International Ltd. from 1983 to 1992, filed a lawsuit seeking a $9.3 million severance payment from the company, according to Dow Jones.
After serving as CFO, Power became vice president, earning $4.7 million a year in salary and bonuses, according to the suit. Power was fired on June 26 during the company's overall shake-up.
Power reportedly claims his severance payment was supposed to be two times his salary and bonus, which works out to about $9.3 million, according to the terms of an agreement he hammered out in 1999 with then—chief executive L. Dennis Kozlowski.
Power left the company for three years, but then returned in June 1995 to serve as a restructuring expert.
According to Dow Jones, Power claims he served in that role at the "specific behest" of Kozlowski and was the only Tyco executive who discussed deals with executives of the companies that Tyco acquired.
In fact, Power claims he was an "integral figure" in Tyco's purchase of CIT Group, ADT, US Surgical, Raychem, and divisions of Lucent Technologies Inc. and Siemens AG.
According to Power, in a 1999 phone conversation, Kozlowski promised him a minimum annual salary of $400,000; a yearly cash bonus equal to the bonus of Mark Swartz, who recently resigned as Tyco's CFO; a grant of 200,000 stock options; immediate vesting of a portion of previously issued stock options; future annual stock-option awards of no less than 50,000 shares a year; forgiveness of a bridge loan and a "gross-up" of the loan for tax purposes; a cash contribution made to a charity; and the severance payment, which was to be greater than $1.5 million or two times Power's salary and bonus.
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