The Washington Post, which first broke the AOL "questionable advertising revenue" story back in 2002, reported today that the SEC is preparing documents alleging that Time Warner Inc. booked more than $400 million in questionable advertising revenue following the company's January 2001 merger with America Online.

According to the article, the most prominent single item is a $400 million ad deal with the German company Bertelsmann AG. The article notes that in a recent SEC filing, Time Warner explained that "in the view of the [SEC's] Office of the Chief Accountant, the Company should have allocated some portion of the $400 million . . . as a reduction in the purchase price for Bertelsmann's interest in AOL Europe, rather than as advertising revenue. . . . The Company and its auditors continue to believe its accounting for these transactions is appropriate."

Also of note in the article is the ominous information from "people familiar with the probe" that the SEC is considering seeking financial sanctions against the company for allegedly failing to cooperate sufficiently with the investigation. According to an unnamed "government official familiar with the SEC's dealings with Time Warner," the company has been "dragging their feet and fighting every inch of the way, not only on the issues but on cooperation.... The commission has made it unmistakably clear that lack of cooperation has a cost."

As seen recently in the Banc of America ($10 million) and Lucent ($25 million) cases, perceived lack of cooperation can carry a steep price tag in settlement discussions with the SEC. If today's article is correct, it will be interesting to see what that price tag may be in this case.