July 30, 2003, 11:12 AM — U.S. securities regulators have reportedly widened their investigation into America Online Inc. (AOL), this time focusing on a bulk subscription program that may have served to artificially fatten the Internet company's customer figures.
According to a report in the online edition of the Wall Street Journal (WSJ) Wednesday, the U.S. Securities and Exchange Commission (SEC) has issued a request asking AOL to hand over documents related to the program, which could have accounted for the addition of 830,00 subscribers to the company's books during 2001 and 2002.
The program in question offered hundreds of thousands of AOL accounts to companies like Sears, Roebuck & Co. and Target Corp. for little or no cost, which were then offered to the companies' employees for less than US$10 a month, the Journal said.
The discount subscriptions could have bulked up the company's customer figures to account for nearly 17 percent of AOL's total subscriber growth of 5 million over the period, the report said.
The allegations come as AOL Time Warner Inc.'s (AOLTW) Internet unit already faces SEC and U.S. Department of Justice (DOJ) probes over its accounting of some advertising transactions, which could have made it look as though the company was doing better than it actually was.
While releasing its second-quarter results last week, AOLTW reported a loss of 1.2 million subscribers compared to the second quarter last year and attributed much of the decrease to the removal of nonpaying users from its subscriber base. The explanation sparked scrutiny into how AOL accounts for its subscribers.
During the quarterly report the company also confirmed that the SEC is continuing its investigation into AOL's accounting and that a further restatement of past financial results may be necessary. The company already restated nearly two years of results last year after discovering accounting problems in the AOL unit.
The report of new concerns over how AOL accounts for its business come at a time when the company is working to get to its feet after being hit with several quarters of subscriber loss and shrinking revenue.
AOL representatives in Europe were not immediately available to comment on the report Wednesday morning.