As a result of a 2001 stock price scandal, the Time Warner Corporation will pay a $246 million settlement to the University of California.

The payout, believed to be the largest of its kind, is subject to approval by the UC Board of Regents at its upcoming meeting March 13-15, as well as by Time Warner’s board of directors.

UC Director of Special Projects Trey Davis said the settlement is unlikely to face opposition at the Regents’ meeting.

“There is no reason to expect that it won’t be approved,” Davis said.

The lawsuit filed against the media conglomerate alleged that before America Online and Time Warner merged in 2001, AOL inflated its sales, revenues and stock prices by nearly $1 billion to artificially boost its share price. At the time, the UC’s pension and endowment funds were heavily invested in Time Warner, and when AOL’s misconduct came to light following the merger, the company’s stock took a major hit.

Following the allegations, AOL Time Warner stock plummeted from $48/share at the time of the merger to less than $10/share by July 2002. The UC sustained a loss of $555 million as a result, and joined a still-ongoing federal class action lawsuit against the company. It subsequently dropped out of the class action suit in order to file a lawsuit under state law, which according to UC General Counsel Charles Robinson offered greater flexibility.

“Opting out of the federal class action suit allowed the University to assert unique claims that were unavailable in the class action,” Robinson said in a press release. “Although every circumstance is different, this result reflects the wisdom of that strategy in this case.”

Indeed, according to a UC Office of the President press release, the payout is expected to be between 16 and 24 times the amount that would have been recovered in the federal suit.

The state lawsuit was filed jointly with Amalgamated Bank. The payout is the UC’s share of an overall $260 million dollar settlement.

The UC, however, has a pending claim against Ernst & Young, AOL and Time Warner’s auditors.

According to Davis, the money will be reinvested in the pension and endowment funds from which it was originally lost. He said since 2001, the UC system is no longer invested in individual stocks.

“Our investments are now in index funds,” Davis said. “Our money is invested in the Russell 3000 Index, which is the 3,000 largest companies.”

However, he said that the decision to switch from individual companies’ stocks – of which the UC generally held between 60 and 80 – was not directly related to the losses sustained during the AOL Time Warner case, but rather reflected a new investment strategy.

“The decision was completely separate. There was a general move to improve our performance and reduce our risk exposure,” Davis said.

The University’s retirement and endowment funds currently total about $71 billion.