Insider Trading at AOL?
By LouAnn Lofton (TMF Bling)
April 14, 2003
Did AOL Time Warner's (NYSE: AOL) top executives engage in illegal insider trading? According to a lawsuit filed by two institutional investors, they did, adding another sticky spot to AOL's ongoing legal morass.
The University of California and Amalgamated Bank filed suit together today in a California court. Both invested in AOL Time Warner, and have seen their stakes drop substantially in value.
The university purchased Time Warner shares pre-merger and says it's lost $450 million because of the combined company's drop in value. Amalgamated's claim stems from one of its pension funds. It says that the LongView Collective Investment Fund invested in AOL after the merger, and its position has taken a $55.9 million hit.
Along with AOL, several top executives are named as defendants, as are AOL's auditor, Ernst & Young, and the investment houses Citigroup's (NYSE: C) Salomon and Morgan Stanley (NYSE: MWD)) that profited from the merger. Soon-to-be-ex-Chairman Steve Case, Vice Chairman Ted Turner (who is also leaving), CEO Richard Parsons, ex-CEO Gerald Levin, and ex-COO Bob Pittman are all listed as defendants.
The suit alleges that executives and insiders made $936 million by selling AOL shares after the merger, but before news of questionable accounting practices broke. Using "tricks, contrivances, and bogus transactions," the executives also falsely boosted AOL's financials, resulting in 2000-2001 earnings that were overstated by nearly $1 billion, according to the suit.
These are serious charges, of course, and aren't going to do much for investor confidence in AOL's past and present leadership. But it should be noted that this isn't the SEC or Justice Department talking. It's a suit brought by Milberg Weiss Bershad Hynes & Lerach LLP, which dubs itself "the world's leading class action law firm."
That's not to say the suit's without merit, but the allegations would be graver were they coming from federal investigators. As it is, AOL has about 30 shareholder suits pending against it, so this one will join the pile.
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