The AOL-Time Warner merger continues to haunt the media giant as regulators get set to charge the group with accounting fraud over $400 million online ad revenue it booked in 2001.

The US Securities and Exchange Commission was understood to be preparing to accuse Time Warner of improperly accounting for earnings from an advertising deal struck between AOL, its online division, and Bertelsmann, the German media company.

An investigation into Time Warner’s accounting began more than two years ago. Reports of the imminent charges sent Time Warner shares down 3 per cent in early New York trade.

A spokeswoman for Time Warner said that it continued to co-operate with investigators from the SEC and the Department of Justice, but refused to comment on the likelihood of charges being filed. The SEC also refused to comment.

The SEC last year subpoenaed Richard Parsons, chairman and chief executive of Time Warner, as well as Steve Case, his predecessor, and other executives as part of its inquiry into the Bertelsmann deal. This was AOL’s biggest advertising deal at the time.

The SEC believed that the $400 million payment was a form of rebate for the $7 billion sum that AOL had paid Bertelsmann for its stake in AOL Europe in January 2001, just before AOL acquired Time Warner. That practice was known as “round tripping,” and regulators have also claimed that there have been other instances of it.

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