America Online Inc. today agreed to pay $3.5 million in fines to the SEC for violating federal securities laws in connection with how it accounted for certain advertising costs in 1995 and 1996. It also agreed not to violate securities laws in the future.
The SEC found that instead of expensing its advertising costs each year as they occurred, AOL capitalized most of the costs of acquiring new subscribers, including the costs of sending computer disks to potential customers, and reported those costs as an asset on its balance sheet.
The company reported profits for six of the eight quarters in those two years, instead of the losses it would have reported had it expensed the costs as they occurred. The costs reached $385 million by Sept. 30, 1996, when the company wrote them off in their entirety.