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AOL Time Warner faces new probe

AOL Time Warner Inc has been targeted in a federal probe for the second time in as many weeks, disclosing on Wednesday that the US Department of Justice has started an inquiry into accounting practices at its America Online division.

The company issued a statement confirming a report in USA Today on Wednesday that the Justice Department had opened an investigation into the accounting practices at the beleaguered online unit, and said it will cooperate fully.

The mammoth media company said on July 24 the US Securities and Exchange Commission had opened an inquiry into the company's accounting. The SEC opened a fact-finding inquiry into AOL after reports in the Washington Post earlier this month raised concerns about accounting practices, including possible inflation of revenue, at the online unit during 2000 and 2001.

"In the current environment, when anyone raises a question about accounting, it's not surprising that the relevant government agencies will want to look into the facts," the company said. "As we said last week, we are cooperating 100 percent with the SEC, and we will cooperate with the Department of Justice as well."

The company reiterated that its accounting was appropriate and in accordance with generally accepted accounting practices, and that its outside auditors have repeatedly confirmed that.

The Justice Department declined to comment.

Separately, AOL Time Warner's search for a new head for its online unit has been narrowed from a wide list, sources close to the search said on Wednesday. They said Jon Miller, a former top executive at USA Interactive -- home to businesses such as Home Shopping Network and Ticketmaster Inc -- is a leading contender for the job.

AOL has been seeking a replacement for AOL Time Warner Chief Operating Officer Robert Pittman, who resigned under pressure only months after he was sent to help lead AOL's recovery. AOL declined to comment on the search.

The Justice Department inquiries are the latest cloud to hang over AOL Time Warner as the company is still contending with a variety of issues including slowing growth at its AOL unit, a recent management upheaval and angry investors demanding a clearer strategy.

Its stock, off more than 65 percent this year, has been hit by jitters in the wake of the accounting scandals at Adelphia Communications Corp, WorldCom Group. and other high-profile companies.

Even though the stock is trading near four-year lows, analysts and investors are not eager to buy it. "We sold out of AOL as soon as we first heard about the SEC investigations," said Vick Khoboyan, an analyst at Financial Management Advisors.
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