SEC Sues Former AOL Time Warner Execs for Overstating Revenue

[WSJ Law Blog]

Eight former executives AOL Time Warner execs have been sued by the SEC for fraud. The complaint, filed today in federal district court in Manhattan, alleges they took part in a scheme that caused the company to overstate its online advertising revenue by more than $1 billion. According to the WSJ report, four of the execs are contesting the charges, while four others have reached a settlement in which they did not admit or deny the agency’s claims.

The suit names former AOL Time Warner CFO John Michael Kelly; Joseph Ripp, former CFO of the company’s AOL division; Steven Rindner, a former senior exec in the business affairs unit; and Mark Wovsaniker, former head of accounting policy.

Mark J. Hulkower, a partner at Steptoe & Johnson who is representing Rinder said, “Steven Rindner is a decent and honorable young man who conducted himself appropriately during his three years at AOL. While he is disappointed that the SEC has decided to pursue this unjustified course of action, he looks forward to the opportunity to clear his name.”

David Geneson, a partner at Sheppard Mullin Richter & Hampton in Washington who is representing Ripp said, “Joe Ripp is the last guy at AOL Time Warner you’d ever accuse of fraud. When he went to the AOL division of AOL Time Warner, he initiated an internal investigation that exposed fraud and led to two federal prosecutions. Federal prosecutors in those cases referred to him as the ‘white hat at AOL who was fixing problems, not causing them.’ There is no question that this lawsuit is plain wrong.”

Jonathan Tuttle of Debevoise & Plimpton, who is representing Kelly, said, “Mr. Kelly flatly denies the SEC’s claims and will vigorously defend himself in the courts. We are disappointed that the SEC has decided to make these allegations against Mr. Kelly, particularly given the significant length of time that has passed since the events in question.”

K&L Gates’s Steve Topetzes, an attorney for Wovsaniker said, “Mark Wovsaniker engaged in no wrongdoing. Indeed, the federal government called him as a witness in several related cases to show that he actively sought to prevent improper conduct by others and that various persons acted contrary to his instructions. It is unfortunate that the SEC brought this action, particularly after the inordinate delay. We look forward to a full airing of the relevant facts.”

The SEC reached settlements in a separate suit, also filed in federal court in Manhattan, with former controller James MacGuidwin, and three former officials from the company’s business affairs unit. All four agreed to pay fines and return allegedly ill-gotten gains, with interest. MacGuidwin agreed to be banned from serving as a public company officer or director for seven years, and David Colburn, the former head of the business affairs unit, agreed to a 10-year ban, the SEC said. Colburn will pay disgorgement and prejudgment interest of $3.2 million and a $750K penalty while MacGuidwin will return $2.1 million and pay a $300K penalty, according to the SEC.