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    May 23, 2008  


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Remember those heady days when AOL and Time Warner merged with the promise of synergy across the Internet and magazine racks everywhere? And then the AOL accounting scandal that followed? Sheppard Mullin’s David Geneson didn’t ask for a time warp back to that era (2001-02), but the SEC dropped a civil-fraud suit on Monday that will force him to revisit it on behalf of former AOL CFO Joe Ripp, one of four senior managers fighting allegations of inflating online ad revenue by $1 billion.


David was retained by Ripp in 2002 after a Post investigation of the merger turned up curious methods of stating revenue. AOL eventually settled SEC and DoJ charges for $510 million and faced scads of shareholder suits, but David says Ripp wasn’t named in any government cases and was praised by the US Attorney’s office as a “white hat” who brought the irregularities to light. David’s view on why the SEC has “dropped this bomb” attacking Ripp? It’s a way to justify the costly investigation of AOL/Time Warner, which has been in progress since before Google went public, even though Ripp’s own internal investigation revealed the accounting errors. David adds that he’s heard (we allow hearsay at Bisnow . . . in fact we encourage it) that but for Ripp’s straight-edge accounting reputation and efforts to ferret out fraud, AOL would have been indicted back in 2002 instead of getting off on corporate probation. (We recognize this may be a one-sided account, but perhaps a future interview will be with the SEC.)


Part of the current suit, as David describes, is a transaction with Bertelsmann AG, which following an SEC and AOL/Time Warner accounting disagreement led to $400 million in restated ad revenue. An ’05 SEC case based on that transaction resulted in slaps on the wrist (or for you detail lovers, Administrative Procedure Negligence Agreements) for three Time Warner execs. As for the case filed Monday, four of eight targeted defendants have already settled out, but David says the settling execs, each from the business affairs unit, weren’t part of Ripp’s work on the financial accounting side.


The S.D.N.Y. has yet to designate a judge, but David fully expects his defense of Ripp to consume much of his schedule. In the meantime, he’s tapping reinforcements from Sheppard’s NY office to sift through the millions of documents and hundreds of depositions that will once again see the light of day.

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