Leading the News: AOL Links to Homestore Draw Fire --- Suit Against Web Realty Claims the Internet Giant Was Party to Complex Deals
As government regulators and prosecutors investigate various accounting practices by AOL Time Warner Inc.'s America Online unit, AOL's relationship with Homestore.com Inc. also is drawing attention from angry Homestore investors.</br></br>A lawsuit filed last week by the California State Teachers' Retirement System -- the nation's third-largest public pension fund, which lost about $9 million on Homestore shares -- alleges that Homestore boosted revenue through complex third-party transactions involving AOL. The suit, filed in U.S. District Court in the Central District of Los Angeles, doesn't name AOL as a defendant, but it claims that AOL was a party to the transactions.</br></br>An AOL spokesman said its auditors, Ernst & Young, have reviewed and approved the accounting related to Homestore. A Homestore spokesman declined to comment.</br></br>The Securities and Exchange Commission is investigating AOL for a series of unconventional transactions that occurred in 2000 and 2001, which were highlighted in a series of Washington Post articles last month. One issue in the probe is whether AOL's online division improperly booked revenue from some of its dot-com partners. For example, America Online booked as advertising revenue $27 million that it received from cashing in stock warrants of a small Las Vegas software company called PurchasePro.com Inc. AOL says its accounting was appropriate.</br></br>Two senior AOL executives, Myer Berlow and David Colburn, already have been questioned by the SEC about AOL's relationship with PurchasePro. AOL executives say that the SEC requested interviews as part of its investigation into PurchasePro, but a PurchasePro spokesman denies any existing investigation. PurchasePro also said it had recently complied with an SEC request to hand over documents about its relationship with AOL.