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Last Updated: Monday, 14 April, 2003, 22:02 GMT 23:02 UK
AOL chiefs accused of insider trading
Outgoing AOL Time Warner chairman Steve Case
Outgoing chairman Steve Case is one of those named in the suit
Two institutional shareholders have launched a lawsuit against top executives at media giant AOL Time Warner claiming they took part in insider trading.

The suit has been filed by the University of California along with the Amalgamated Bank's Long View Collective Investment Fund.

It alleges that those named in the suit gained nearly $1bn (640m) by selling shares while using "tricks, contrivances and bogus transactions" to boost the company's share price, according to the law firm representing the institutional shareholders.

AOL Time Warner declined to comment on the suit that has been filed, amongst others, against outgoing chairman Steve Case and vice president Ted Turner.

Revenue allegations

The lawsuit also alleged that America Online had overstated its earnings by almost $1bn from 2000 to 2001.

It claimed the firm had also overstated subscriber numbers and inflated advertising revenues to help it reach the deal with Time Warner.

Last October, AOL Time Warner said it would restate its results for the past two years in a move which would cut revenue by $190m.

The company is also under investigation by the Securities and Exchange Commission over how it recorded $400m of ad revenues following deals with Bertelsmann.

Heavy losses

The University of California and Longview fund allege that top executives used the merger between AOL and Time Warner in January 2001 to cash in share options on an accelerated basis.

They claim share options worth $1.7bn were cashed in by the top five AOL executives.

"The University of California made a sound investment in a solid company when it invested heavily in Time Warner prior to its merger with AOL," said David Russ, the university's treasurer, said in a statement.

"The value of that investment was significantly impaired as a result of the merger."

The University said it had lost $450m as a result of the deal.

Share slump

Among those named in the suit were chairman Steve Case and vice chairman Ted Turner.

In January, Steve Case said he would step down in May after shareholders expressed their displeasure at the big drop in AOL Time Warner's share price.

Ted Turner is also set to resign in May.

Mr Case was seen as the driving force behind the merger of internet service provider America Online and media giant Time Warner in early 2001.

The deal married both old and new media and looked set to revolutionise the way people could access films and entertainment.

But since the merger, the firm's share price has slumped by nearly two thirds.

And earlier this year AOL Time Warner announced a loss of nearly $100bn for 2002 - the largest annual loss in US history.

William Lerach, shareholders' lawyer
"The complaint sets forth a very detailed scheme...to artifically inflate the stock prices."

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