AOL's internet division is starting to revive

The California State Employees' Retirement System (Calpers), an AOL Time Warner stockholder, is claiming compensation for a slump in the value of the company's shares over the past two years amid growing scrutiny of its accounting practices.

"We are filing this suit to be in the strongest possible position to aggressively obtain recovery of assets lost through this fraud and deception up on investors," said Mark Anson, Calpers chief investment officer.

Last October, AOL Time Warner admitted that sales at AOL had been overstated by about $170m in the two years to June 2002.

Calpers' lawsuit alleges that AOL's advertising sales were overstated by "at least" $1.7bn over a period spanning its merger with Time Warner in January 2001.

Investor anger

In a separate lawsuit, the California State Teachers' Retirement System, is reported to be claiming about $200m in compensation from the firm.

AOL Time Warner, the world's largest media company, is already battling about 30 lawsuits from aggrieved investors.

Earlier this year, two other AOL Time Warner shareholders - the University of California and the Amalgamated Bank's Long View Collective Investment Fund - alleged in a lawsuit that some of the firm's top executives boosted its share price through bogus transactions.

The recent stock market rally has lifted AOL Time Warner's shares by nearly a third this year, but they are still down more than 70% from their May 2001 peak.

Calpers, the largest pension fund in the US, has earned a reputation for holding companies to account for share price falls.

Four years ago, it took part in legal action which ultimately forced real estate firm Cedant to pay $2.8bn in compensation to shareholders.

AOL Time Warner, which last year crashed to a $100bn loss - the biggest in corporate history - is mid-way through an asset disposal programme aimed at paying off its debts.