AOL Time Warner Inc. (AOL) said Wednesday that the U.S. Department of Justice has started an inquiry into accounting practices at its America Online division and that it will cooperate fully.

The company issued a statement confirming a report in USA Today Wednesday that the Justice Department had opened an investigation into the accounting practices at the beleaguered online unit, only days after AOL said the U.S. Securities and Exchange Commission had opened an inquiry.

Shares of AOL Time Warner fell more than 9 percent, or $1.19, to $11.20 on the New York Stock Exchange -- not far from four-year lows.

The SEC opened a fact-finding inquiry into AOL after reports in the Washington Post earlier this month raised concerns about accounting practices, including possible inflation of revenue, at the online unit during 2000 and 2001.

"In the current environment, when anyone raises a question about accounting, it's not surprising that the relevant government agencies will want to look into the facts," the company said. "As we said last week, we are cooperating 100 percent with the SEC, and we will cooperate with the Department of Justice as well."

The company reiterated that its accounting was appropriate and in accordance with generally accepted accounting practices, and that its outside auditors have repeatedly confirmed that.

The Justice Department declined to comment.

PROBE LIKELY SEEKING CRIMINAL ELEMENT

Lawyers familiar with such inquiries said it was not unusual for the Justice Department to enter an investigation to see whether there was a criminal element involved.

"What we are likely to see fairly early is a decision from the DOJ on whether or not this (inquiry) will turn criminal in nature," said Bob Mintz, head of the white-collar criminal practice at the Newark, New Jersey-based law firm of McCarter & English.

"If so, we will likely see a barrage of grand jury subpoenas for records and may even see subpoenas for testimony at some point in the near future, but this is the very preliminary stages of an investigation."

The government is likely to move quickly because of the concerns about accounting that have shaken confidence in corporate America.

"Historically, these (inquiries) have taken some time to ferret out. We are however, in a different era," said Frank Goldstein, of Sidley Austin Brown & Wood in Washington.

"These things are high-profile, and enormous attention has been put on them by markets and the media and perhaps even with investors. So that leads me to believe we're probably talking about a matter of weeks, not months," Goldstein said.

AOL Time Warner is contending with a variety of issues, including slowing growth at its AOL unit, a recent management upheaval and angry investors demanding a clearer strategy, so the inquiries are the latest cloud to hang over the company.

Its stock, off more than 65 percent this year, also has been hit by jitters in the wake of the accounting scandals at Adelphia Communications Corp. and WorldCom Group.

Even though the stock is trading near four-year lows, analysts and investors are not eager to buy it.

"We sold out of AOL as soon as we first heard about the SEC investigations," said Vick Khoboyan, an analyst at Financial Management Advisors. "The inquiries could be for AOL and Time Warner and we didn't want to take that chance."

CAUTION URGED

In a research note, Merrill Lynch analyst Jessica Reif Cohen echoed those concerns and recommended that investors stay on the sidelines until it becomes clearer.

AOL has said the accounting questions raised by the Washington Post concerned deals that comprised less than 2 percent of the online unit's overall revenue.

"What they are likely to do is obviously focus on what appears to be inappropriate accounting at AOL and simultaneously give a broad look at the entire financial condition of the company and its financial statements to see if anything jumps out at them," Goldstein said.

The company's bonds were also actively traded.

AOL Time Warner's investment-grade 6.875 percent notes maturing in 2012, quoted by dollar price like "junk" bonds, fell 3.5 cents on the dollar to 82 cents, traders said, pushing their yield up nearly two-thirds of a percentage point to 9.78 percent.