Saturday, July 19, 2003

Ohio, Calif. suing AOL Time Warner

By Carrie Spencer
The Associated Press

COLUMBUS - Ohio and California sued media conglomerate AOL Time Warner on Friday to recover hundreds of millions of dollars in investments lost by state public employee pension funds, Ohio Attorney General Jim Petro said.

The lawsuits accuse the company of misleading investors before the merger that created it.

Ohio's five pension funds and the Bureau of Workers Compensation - which lost more than $100 million - didn't join a pending class-action lawsuit by individual stockholders. They instead sued in Franklin County Common Pleas Court under a different statute that covers institutional investors, Petro said.

California's Public Employees' Retirement System filed a similar lawsuit seeking recovery of $250 million in Superior Court of California, spokeswoman Pat Macht said. The sister fund for state teachers was expected to do the same, she said.

The lawsuits say America Online and Time Warner misled investors about the companies' financial conditions and falsified documents filed with federal regulators to complete their merger in 2001.

"An intentional breakdown in corporate accountability - a cooking of the books - has caused Ohio pension funds to suffer," Petro said, adding other states are likely to file similar lawsuits.

A spokeswoman for the New York City-based company declined to comment.

Ohio's complaint accuses the company of fraud, breach of fiduciary duty and other violations of federal securities and state laws. Both states also named as defendants the companies' executives and board members and the investment and accounting firms that participated in the merger.

"In order to inflate AOL's stock prior to the merger and to secure Time Warner shareholder approval of the sale of Time Warner to AOL and then to continue to inflate the price ... after the merger, defendants presented AOL's business as achieving record growth and profitability," the suit says.

The promised growth did not take place, it said.

Ohio's five public pension funds owned Time Warner stock before the merger. They owned 3 million shares in the combined company and acquired 2 million more. Share prices were about $49 just after the merger but plunged to less than $10, Petro said, adding that the funds still are calculating final losses.

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