America Online Inc. has agreed to pay $3.5 million in penalties to the U.S. Securities and Exchange Commision to settle a civil suit that charged the company with improper accounting of advertising and marketing costs during the mid-1990s.
AOL also consented to an administrative order prohibiting it from future securities violations, the SEC announced yesterday. The online giant didn't admit or deny the charges that were brought against it, the SEC said.
The case was filed by the SEC in U.S. District Court in Washington and then quickly settled. The government agency claimed that AOL reported profits for six of eight quarters in fiscal years 1995 and 1996, rather than the losses it really had. The so-called profits came from booking marketing costs related to acquiring new subscribers as assets instead of expenses, the SEC said.
"This action reflects the Commission's close scrutiny of accounting practices in the technology industry to make certain that the financial disclosure of companies in this area reflect present reality, not hopes about the future," said Richard H. Walker, the SEC's director of enforcement, in a statement.
In a statement of its own, AOL said it stopped using the accounting practices targeted by the SEC's suit almost four years ago.
AOL already took a $385 million one-time charge in the first quarter of fiscal 1997 because of the accounting changes. But the Dulles, Virginia-based company said it again will restate its results from 1995 to 1997 as a result of the settlement with the SEC.