Risk Management

Judge Okays Time Warner Settlements

The derivative agreements reportedly call for the media giant to make governance and compliance changes intended to improve oversight and boost boa...
Stephen TaubSeptember 7, 2006

Time Warner’s accounting scandal seems to be receding further into the past. A federal judge has approved settlements of a number of derivative lawsuits based on alleged accounting misconduct before and after the media giant’s ill-fated 2001merger with America Online Inc., according to Dow Jones Newswires.

The settlements call for Time Warner to adopt governance and compliance changes intended to improve oversight and boost the independence of its board, the wire service reported.

What specific governance policies the media company agreed to implement aren’t yet clear. In any case, the deal requires Time Warner to acknowledge that the derivative actions were a “substantial factor” in the company’s ability to obtain a recovery of about $200 million from its directors and officers’ liability insurance, according to Dow Jones .

“The monetary recovery will help to offset the substantial losses alleged by the derivative actions,” Judge Shirley Wohl Kram reportedly said in her 15-page opinion. “Further, the settlement narrowly limits the use of those funds to ensure that the bulk of the proceeds are available for the direct benefit of the company.”

Derivate suits rarely result in major monetary awards. Rather, they typically lead to companies agreeing to a set of governance changes.

In April, Judge Kram approved the $2.65 billion settlement of a class-action lawsuit charging that AOL inflated revenues by at least $1.7 billion by fraudulently accounting for advertising sales for 15 quarters between 1998 and 2002, thus harming investors.

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