The University of California accused AOL top executives Monday of reaping $936 million in illegal insider-trading profits by using "tricks, contrivances and bogus transactions" to manipulate AOL's stock price before and after its merger with Time Warner in January 2001.
In a 184-page complaint filed in California state court, the giant university system, which has lost more than $450 million on AOL Time Warner shares, accused company Chairman Steve Case and others of concealing the deterioration in America Online's business so they could complete the merger and trigger lucrative stock options.
The executives also used corporate cash to prop up AOL Time Warner shares after the merger, enabling them to sell stock while hiding weaknesses in AOL's advertising, the lawsuit alleged.
Although federal probes into America Online have focused primarily on financial reporting issues, the scope of those investigations might include a careful review of these fresh insider trading allegations, sources said.
The lawsuit follows the filing of dozens of other federal shareholder actions against AOL Time Warner. The University of California recently withdrew from a class-action shareholder suit to file its own action in its home state.