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U.S. Securities and Exchange Commission

Before the

Release No. 8406 / April 14, 2004

Release No. 49561 / April 14, 2004

Release No. 1989 / April 14, 2004

File No. 3-11457

In the Matter of





The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against John Luczycki, CPA ("Respondent" or "Luczycki") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.1


In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.


On the basis of this Order and Respondent's Offer, the Commission finds that:


1. John Luczycki, age 42, is a resident of Yorktown Heights, New York. From December 2000 to July 2002, Luczycki was the Chief Accounting Officer and controller of Vivendi Universal, S.A. ("Vivendi"). During this time period, Luczycki assisted in the preparation of Vivendi's Commission filings, shared responsibility for Vivendi's system of internal controls, and helped to maintain Vivendi's books, records, and accounts. Luczycki has been licensed as a CPA in New York since 1988. Luczycki recently placed his CPA license on inactive status.


2. Vivendi is a French corporation which, during 2001 and 2002, maintained corporate offices in Paris, France and in New York, New York. Vivendi's current headquarters are in Paris. During all relevant times, Vivendi's American Depository Shares were registered with the Commission pursuant to Section 12(g) of the Exchange Act and were traded on the New York Stock Exchange, and Vivendi was required to file annual reports on Form 20-F with the Commission pursuant to Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.


Luczycki's Participation in Improper Adjustments to Increase Vivendi's Reported Earnings Before Interest, Taxes, Depreciation, and Amortization ("Ebidta") for The Second and Third Quarters Of 2001

3. During two quarters in 2001, Vivendi met ambitious earnings targets by improperly making adjustments to the reserve accounts of certain Vivendi subsidiaries, and by making other improper accounting entries. As a result, this financial information was misleading and was not reported in conformity with U.S. Generally Accepted Accounting Principles ("GAAP").

4. In or about December 2000, Vivendi publicly predicted that it would generate annual EBITDA growth of 35% during 2001. This EBITDA target was repeated on numerous occasions in filings that Vivendi made with the Commission during 2000 and 2001.

Second Quarter 2001 EBITDA Adjustments

5. In late June 2001, Vivendi's senior executives became concerned that its EBITDA growth for the quarter ended June 30, 2001 might not meet or exceed market expectations. As a result, Luczycki and other senior executives made various improper adjustments that raised Vivendi's EBITDA by almost €59 million2, or 5% of the total EBITDA of €1.12 billion that Vivendi reported for that quarter.

6. In the weeks leading up to Vivendi's earnings release for the second quarter of 2001, Luczycki and others increased Vivendi's EBITDA primarily by causing Cegetel Group ("Cegetel"), a French telecommunications company in which Vivendi, at the time, held a 44% interest, to depart from its historical methodology for determining the level of its reserve for bad debts (accounts receivable). That departure resulted in Cegetel taking a lower provision for bad debts during that quarter than its historical methodology required. This improper departure caused Cegetel's bad debts reserve for the second quarter of 2001 to be €45 million less than it should have been. As a result, Vivendi's overall EBITDA for that period was increased by the same amount.

7. During the relevant time period, Cegetel's financial results were fully consolidated into Vivendi's financial statements, which at that time were prepared in accordance with GAAP in France, but reconciled to U.S. GAAP. Under U.S. GAAP, Statement of Financial Accounting Standards No. 5 ("FAS 5") precludes the use of reserves, including excess reserves, for general or unknown business risks, and the systemic or time release of reserves into income. Further, FAS 5, paragraph 23, states that an estimate of losses on accounts receivable "normally depend[s] on, among other things, the experience of the enterprise… and appraisal of the receivables in light of the current economic environment."

8. Luczycki was at least reckless in not knowing that Cegetel's reduction to its provision for bad debts during the second quarter of 2001 was made without the level of documentation and analysis that was required. Further, the decision to take a lower provision for bad debts in the second quarter of 2001 occurred at a time when Cegetel was actually having more difficulty collecting on its bad debts.

9. In addition to taking a lesser bad debt provision in the second quarter of 2001, Cegetel also improperly deferred to the third quarter of 2001 approximately €14 million in provisions for potential future payments and potential liabilities that Cegetel properly should have booked in the second quarter of 2001. Altogether, those adjustments at Cegetel totaled €59 million and enabled Vivendi to show overall EBITDA growth of 35% for the second quarter of 2001.

10. At the time that Luczycki incorporated Cegetel's results into Vivendi's consolidated earnings release, he was at least reckless in not knowing that the accounting adjustments at Cegetel were made without proper supporting documentation. As a result, Vivendi's reconciled U.S. GAAP financial statements (which incorporated Cegetel's results) were not in conformity with the requirements of FAS 5.

11. Vivendi issued a press release on July 23, 2001 boasting that it had achieved 35% EBITDA growth for the second quarter of 2001. The press release also represented that, except for Canal+ (the French cable company Vivendi acquired in December 2000) and certain publishing operations, the results contained in the press release were "U.S. GAAP based." As a result of the various improper adjustments made to Cegetel's reserve accounts in the second quarter of 2001, these representations in Vivendi's press release were misleading.

12. Vivendi also made misleading claims in this press release about the increase in the performance of its "telecoms," including Cegetel, over the second quarter of 2000, when in reality over 8% of the telecoms' EBITDA came from the improper adjustments of accounting reserves in violation of FAS 5.

13. The market reacted favorably to Vivendi's July 23, 2001 press release. For example, analysts observed that Vivendi had beaten the expectations and results of its main competitors in the media industry. One analyst noted that Vivendi's results were a "pleasant surprise," while another news report specifically noted that the results of Cegetel and Vivendi's other telecommunications businesses "defied ... the telecommunications meltdown." On the day that Vivendi announced its results, its share price increased by 5% in the United States and 5.5% on the Paris exchange.

Third Quarter 2001 EBITDA Adjustments

14. Improper adjustments to Vivendi's EBITDA also occurred in the third quarter of 2001, affecting the results of Vivendi's music division, Universal Music Group ("UMG"). Luczycki and others participated in making these adjustments so that Vivendi could reach a pre-determined EBITDA target of €250 million.

15. In late October 2001, Luczycki and other senior executives at Vivendi temporarily reduced the amount of corporate overhead charges it allocated to UMG by €7 million. This reduction in the corporate overhead charges equaled the exact amount of additional earnings that Vivendi's senior executives determined that UMG would need in order to reach €250 million in EBITDA for the quarter ended September 30, 2001.

16. The corporate overhead adjustment occurred after UMG had submitted its accounts to Vivendi for the quarter. Moreover, this accounting adjustment to UMG's EBITDA was made without proper documentation and was not in conformity with U.S. GAAP. The reduction in allocated overhead charges was not in conformity with U.S. GAAP because it did not comply with Statement of Financial Accounting Concepts No. 6 ("SFAC 6") or Statement of Financial Accounting Standards No. 131 ("SFAS 131"). SFAC 6, "Elements of Financial Statements," states that allocations are assigned and distributed "according to a plan or a formula." SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," provides that amounts allocated to reported segment profit or loss "shall be allocated on a reasonable basis." In contrast, Luczycki and others based the overhead allocation charged to UMG not on a plan or formula, but on a desire to reach a specific EBITDA target.

17. This improper adjustment increased UMG's reported EBITDA for the third quarter ended September 30, 2001, by at least €7 million, or approximately 3% of UMG's total EBITDA of €250 million for that quarter.

18. Luczycki incorporated UMG's improperly adjusted results into Vivendi's third quarter earnings release.

Luczycki's Participation in Vivendi's Concealment of €1.1 Billion in Material Commitments

19. Luczycki knew or was reckless in not knowing that Vivendi failed to disclose a side agreement that Vivendi entered into in February 2001 to purchase an additional €1.1 billion stake in Maroc Telecom, a telecommunications operator of fixed line and mobile telephony and Internet services based in Morocco.

20. In December 2000, the Moroccan government sponsored an auction of 35% of the state-owned Maroc Telecom. Vivendi won the auction with a bid of €2.35 billion. Under the terms of the auction, the Moroccan government, which would retain a 65% stake in Maroc Telecom, required Vivendi to execute a shareholder agreement that would maintain the Moroccan government's control over Maroc Telecom's operations. The terms of that shareholder agreement precluded Vivendi from consolidating Maroc Telecom's results.

21. Vivendi, however, wanted to gain control of Maroc Telecom and consolidate its results because Maroc Telecom carried little debt and generated substantial EBITDA. By consolidating Maroc Telecom, Vivendi hoped to increase its EBITDA performance and, more importantly, improve the debt/EBITDA ratio used by credit rating agencies to evaluate Vivendi's credit.

22. In February 2001, Vivendi and the Moroccan government entered into a side agreement that required Vivendi to purchase an additional 16% of Maroc Telecom's shares in February 2002 for approximately €1.1 billion. In return, the Moroccan government granted Vivendi certain management rights over the operations of Maroc Telecom upon which Vivendi based its consolidation of Maroc Telecom.

23. Luczycki and others knew or were reckless in not knowing about the existence and terms of the side agreement and failed to disclose that Vivendi had committed to purchasing an additional 16% stake in Maroc Telecom, contingent upon the Moroccan government's exercise of the irrevocable put, by February 2002 for €1.1 billion. Vivendi failed to disclose these facts in its public filings with the Commission, the Commission des Opérations de Bourse ("COB"), the French securities regulator, and in other public statements that it made in 2001.

24. For example, on July 2, 2001, Vivendi filed its Form 20-F for the fiscal year ended December 31, 2000, approved by senior executives, which disclosed the following about Maroc Telecom:

In December 2000, we announced that we had acquired a 35% stake in Moroccan telecommunications operator Maroc Telcom for approximately €2.3 billion. Maroc Telecom, which operates fixed-line and mobile telephone networks in Morocco, is estimated to have generated revenue of approximately €1.3 billion in 2000. In cooperation with Maroc Telecom, we intend to contribute our telecoms experience to the modernization of the telecommunications industry in Morocco.

25. By omitting to disclose the Maroc Telecom side agreement, and in particular Vivendi's commitment to pay an additional €1.1 billion in February 2002 for additional shares of Maroc Telecom, Vivendi's Form 20-F was materially false and misleading.

26. Vivendi also failed to disclose its commitment with respect to Maroc Telecom in its periodic filing with the COB for the six-month period ended June 30, 2001. On October 17, 2001, Vivendi furnished an English translation of that filing to the Commission on Form 6-K. The COB filing and Vivendi's Form 6-K were reviewed and allowed to be filed by Luczycki and other Vivendi senior executives.

Luczycki's Participation in Vivendi's Failure to Disclose All Material Facts Concerning the Telco Transaction

27. Luczycki also participated in Vivendi's failure to disclose in a timely manner all material facts concerning its investment in a fund that purchased a 2% stake in Telco, a Polish telecommunications holding company.

28. In June 2001, Vivendi, which owned 49% of Telco's equity, publicly announced its intention to purchase an additional 2% of Telco's shares from Vivendi's partner in the Telco joint venture. This purchase would have increased Vivendi's ownership of Telco equity from 49% to 51%. Vivendi anticipated that it would have to pay approximately €100 million for the additional Telco shares.

29. After this announcement, Vivendi learned that Poland's antitrust authorities would have to approve the acquisition, a process that could have taken several months. Vivendi also learned that the market in general, and the credit rating agencies in particular, might react negatively to Vivendi's acquisition of additional Telco shares. As a result, rather than directly purchasing the 2% interest in Telco, Vivendi deposited $100 million into an investment fund administered by Société Générale Bank & Trust Luxembourg. That fund subsequently purchased a 2% stake in Telco in September 2001, and continues to own those shares.

30. Vivendi did not disclose all material details about this transaction until 2003. Instead, Vivendi's Form 20-F for the fiscal year ended December 31, 2001, the relevant portion of which Luczycki edited and approved, states only the following concerning Vivendi's interest in Telco:

Participation in Elektrim - In September 2001, Elektrim Telekomunikacja (Telco), in which Vivendi Universal has a 49% interest, acquired all of Elektrim S.A.'s landline telecommunications and Internet assets.

31. Vivendi's statements and omissions concerning Telco in its Form 20-F for the fiscal year ended December 31, 2001 created the false and misleading impression that Vivendi maintained no more than a 49% financial interest in Telco, whether directly or indirectly, and failed to disclose that it had invested in a fund that purchased a 2% stake in Telco.


32. Based on the foregoing, the Commission finds that Luczycki (a) willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder; and (b) willfully aided and abetted and caused Vivendi's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-1 promulgated thereunder.


In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Luczycki's Offer

Accordingly, it is hereby ORDERED, effective immediately, that:

  1. Luczycki shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder; and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-1 promulgated thereunder;

  2. Luczycki is denied the privilege of appearing or practicing before the Commission as an accountant.

  3. After 3 years from the date of this order, Respondent may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:

    1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company' s financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or

    2. an independent accountant. Such an application must satisfy the Commission that:

      (a) Respondent, or the public accounting firm with which he is associated, is registered with the Public Company Accounting Oversight Board ("Board") in accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective;

      (b) Respondent, or the registered public accounting firm with which he is associated, has been inspected by the Board and that inspection did not identify any criticisms of or potential defects in the respondent's or the firm's quality control system that would indicate that the respondent will not receive appropriate supervision or, if the Board has not conducted an inspection, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the former SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms or an organization providing equivalent oversight and quality control functions;

      (c) Respondent has resolved all disciplinary issues with the Board, and has complied with all terms and conditions of any sanctions imposed by the Board (other than reinstatement by the Commission); and

      (d) Respondent acknowledges his responsibility, as long as Respondent appears or practices before the Commission as an independent accountant, to comply with all requirements of the Commission and the Board, including, but not limited to, all requirements relating to registration, inspections, concurring partner reviews and quality control standards.

  4. The Commission will consider an application by Respondent to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.

By the Commission.

Jonathan G. Katz




Modified: 04/14/2004