State to get $144 million from AOL Time Warner in fraud settlement (STRS to get $66.5 million)

State to get $144 million from AOL Time Warner in fraud settlement

By Tracy Turner
The Columbus Dispatch, March 7, 2007

Five state pension funds and the Ohio Bureau of Workers' Compensation will receive $144 million to settle a securities fraud lawsuit filed against AOL Time Warner.

The suit said AOL inflated its stock price before merging with Time Warner, causing the funds to lose millions, the Ohio attorney general announced today.

The lawsuit, filed in 2003, claimed that the six funds lost nearly $400 million when the price of AOL Time Warner stock fell from $48 per share to less than $10 a share. The decline followed the discovery that AOL had misrepresented sales, revenue and subscriber figures in advance of the merger, Attorney General Marc Dann said.

The settlement is “a loud and clear message to corporate America and to Wall Street, that we as, investors, citizens and pension holders, will not tolerate fraud, stock manipulation or deceit,” Dann said during a news conference in Cleveland to announce the settlement. “If you abuse the public trust and steal from taxpayers, you will pay the price.”

Ohio opted out of a class-action lawsuit against the company and instead chose to negotiate on its own. As a result, the six funds will receive $144 million, compared with $9 million that would have been received as part of the class-action suit, Dann said.

The agreement calls for the bureau, the State Teachers Retirement System, Public Employees Retirement System, the Police and Fire Retirement System, the Highway Patrol Retirement System and the School Employees Retirement System, to receive the funds by March 22. All of the funds owned Time Warner stock prior to the settlement.

The settlement is the largest securities fraud case involving pension funds in Ohio's history, Dann said.

“AOL's blatant disregard for the rule of law and willful abandonment of ethical business practices is deplorable,” he said. “Hopefully, the heavy price they now have to pay will deter others from using the same deceptive tactics in the future.”

Bob Smith, a board member with the Public Employees Retirement Fund, called the settlement a “good outcome.”

“The (funds) losses were significant … we are very pleased with the settlement,” he said.

The settlement will be distributed as follows:

• State Teachers Retirement System, $66.5 million
• Public Employees Retirement System, $62.3 million
• Bureau of Workers' Compensation, $8 million
• Police and Fire Retirement System, $4.1 million
• School Employees Retirement System, $2.5 million
• Highway Patrol Retirement System, $290,778