E&Y: ‘We stand behind our work’

Link: E&Y named in multimillon dollar AOL lawsuit

The SEC was initially investigating two advertising deals between AOL Time Warner and German media giant Bertelsmann. The latter agreed to buy $400m (£256m) worth of advertising, but only if AOLTW paid for the Bertelsmann holding in AOL Europe in cash.

But many experts believe the £400m should have been viewed as a straight discount, or rebate, rather than advertising revenue, and as a result argue it misled investors.

But similar deals could now also face enquiry. A $100m deal with online job site has come under scrutiny, along with smaller deals with and Catalina Marketing. AOL itself said in a filing that a ‘further restatement of the company’s financial statements may be necessary’.

A spokesman for the SEC refused to either confirm or deny whether it was looking into Ernst & Young’s role in the affair.

But the Big Four firm has already been named as part of a suit handed down by the University of California and the Amalgamated Bank. Together they claim to have lost more than $500m on the value of their holdings in the company, because the figures underlying AOL’s acquisition of Time Warner were not ‘truthfully reported’.

Ken Kerrigan, spokesman for Ernst & Young, said he could not comment beyond the official statement because AOL Time Warner was a client. The firm had also advised both companies before their merger. ‘We strongly stand behind our work, and think the University of California suit is without merit. We fully intend to defend our work and the firm,’ Kerrigan told Accountancy Age.

AOL has already handed over millions of pages of documents to the SEC.

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