dictionary

Justice starts looking into AOL Time Warner

WASHINGTON (CNN) -- The Justice Department has started a preliminary investigation into accounting practices at AOL Time Warner, a U.S. official told CNN on Wednesday.

The Justice Department refused to comment, citing a policy of never commenting on investigations.

CNN has learned, however, that U.S. prosecutors in Virginia are leading the probe. The first step, according to sources, is to compare notes with investigators from the Securities and Exchange Commission, which also is reviewing the company's practices.

Last week, AOL Time Warner's CEO Richard Parsons disclosed the SEC's probe after the company posted second-quarter profits, reversing losses of a year ago.

LEGAL RESOURCES Latest Legal News Law Library FindLaw Consumer Center Select a topic Bankruptcy Discrimination Divorce Estate Planning Landlord-Tenant Personal Injury Taxes

At that time, Parsons defended the company's accounting practices -- a position AOL Time Warner reiterated in a statement Wednesday.

"We have consistently said that our accounting is appropriate and in accordance with generally accepted accounting principles, and our outside auditors, Ernst & Young, have repeatedly confirmed that," a company spokeswoman said.

Officials Wednesday underscored that the Justice Department effort is in its very early stages. In response to questions about Justice's power to subpoena witnesses and the scope of the investigation, one source said, "We are nowhere close to the point of thinking about subpoenas or where this will lead us."

Questions about AOL Time Warner arose after Washington Post newspaper articles last week suggested improprieties in a series of unconventional deals that boosted AOL revenue before and after the merger with Time Warner.

Parsons, who became company head last spring, discredited that report.

He said the company's accountants, Ernst & Young, signed off on the accounting at the time of the transactions and then again when the issue was brought up.

Parsons said AOL Time Warner advised the SEC prior to publication of the Post articles, but "after the articles came out, the SEC informed us that they are conducting a fact-finding inquiry," he said.

AOL Time Warner has said it will cooperate with the SEC and Wednesday's statement pledged the same treatment for other government agencies.

"We said last week ... we will cooperate 100 percent with the SEC as they look into the facts. If the Justice Department wants to look at the facts, of course we will cooperate with them too, as we would with any appropriate government agency," the spokeswoman said.

AOL Time Warner owns America Online, Time magazine, Warner Bros. studios, HBO, CNN, CNN/Money and other properties.