A shareholder has filed a securities fraud suit against AOL Time Warner, alleging the world's largest media company artificially inflated online advertising revenue.

The suit was filed Thursday night in Manhattan federal court following a Washington Post report that the America Online unit boosted online advertising revenue through "unconventional deals" from 2000 to 2002.

The lawsuit, which cites the newspaper story, seeks class-action status and unspecified damages. Accounting firm Ernst & Young is also identified in the body of the lawsuit as a co-defendant in the case, although it was not included in the list of defendants on the first page of the lawsuit.

"This lawsuit is without merit, and we intend to vigorously contest it in court. All company accounting has been appropriate and in accordance with GAAP (generally accepted accounting principles), and we have provided our investors with all appropriate material information about our business," AOL Time Warner said in a statement.

Spokesmen for Ernst & Young could not immediately be reached for comment.

The case was filed by shareholder Jennifer Fadem on behalf of investors who bought America Online common stock between July 19, 1999, and Jan. 10, 2001, and those who bought AOL Time Warner shares between Jan. 11, 2001, and July 17, 2002.

America Online completed its $106.2 billion acquisition of Time Warner in January 2001.

The suit, citing information revealed in the Washington Post report, alleges that AOL misstated online advertising revenue by including such sums as one-time payments in connection with the termination of advertising contracts.

The plaintiff alleges that the company "artificially inflated" online advertising revenue for its 2001 fiscal first quarter by including $16.4 million in online advertising that AOL required 24dogs.com to purchase to settle a legal dispute and sums received in connection with selling online advertising for online auction site eBay.

It further alleges that Ernst & Young broke securities laws by certifying AOL Time Warner's financial statements as incorporated in the company's annual report for its fiscal year 2001.

The lawsuit said that after the Post story ran on Thursday, AOL Time Warner stock dropped as low as $11.75.

An AOL spokesman on Thursday told Reuters that the Washington Post story was "flawed in its facts and analysis and misleading in its conclusion."

Separately on Thursday, Robert Pittman, AOL Time Warner's chief operating officer, resigned under pressure. Pittman, a one-time whiz kid who had epitomized the brash era of the dot-com boom, had been the group's No. 2 executive and was chosen in April to revive the company's struggling online unit.

Two veteran Time Warner executives were promoted as top deputies to Chief Executive Richard Parsons, giving them much of the control of the world's largest media company only 18 months after AOL completed its $106.2 billion acquisition of Time Warner in a merger that had been seen as heralding a new era.

Story Copyright © 2002 Reuters Limited. All rights reserved.