Defendants Agree to Pay Over $51 Million in Disgorgement and Civil Penalties
Complaint Alleges Fraud Between December 2000 and July 2002, Including False Press Releases, Improper Adjustments to Earnings, and Failure to Disclose Future Commitments
Securities and Exchange Commission v. Vivendi Universal, S.A., Jean-Marie Messier, and Guillaume Hannezo, 03-CIV-10195 (S.D.N.Y.)(filed December 23, 2003)
The Securities and Exchange Commission (Commission) announced today that it filed a settled enforcement action against Vivendi Universal, S.A. (Vivendi), a media and environmental services conglomerate, its former CEO, Jean-Marie Messier (Messier), and its former CFO, Guillaume Hannezo (Hannezo). The settlements include Vivendi's consent to pay a $50 million civil money penalty. The settlements also include Messier's agreement to relinquish his claims to a â¬21 million severance package that he negotiated just before he resigned his positions at Vivendi, and payment of disgorgement and civil penalties by Messier and Hannezo that total over $1 million.
The Commission's Complaint describes a course of conduct by Vivendi, Messier, and Hannezo that disguised Vivendi's cash flow and liquidity problems, improperly adjusted accounting reserves to meet earnings before income taxes, depreciation, and amortization (EBITDA) targets, and failed to disclose material financial commitments, all in violation of the antifraud provisions of the federal securities laws.
Specifically, the Commission's Complaint includes the following allegations:
- During 2001 and the first half of 2002, Vivendi issued misleading press releases authorized by Messier, Hannezo, and other senior executives. The press releases falsely portrayed Vivendi's liquidity and cash flow as "excellent" or "strong" and as sufficient to meet Vivendi's future liquidity requirements. These statements were misleading in light of Vivendi's inability unilaterally to access the cash flow of two of its most profitable subsidiaries, a situation that substantially impaired Vivendi's ability to satisfy its debt burden and other operating costs.
- Vivendi, at the direction of its senior executives, made improper adjustments that raised Vivendi's EBITDA by approximately â¬59 million during the second quarter of 2001 and by at least â¬10 million during the third quarter of 2001. These adjustments were made so that Vivendi could meet ambitious earnings targets that it had communicated to the market.
- Vivendi failed to disclose future financial commitments regarding two of its subsidiaries. Vivendi failed to disclose the commitments in Commission filings and in meetings with analysts. If Vivendi had revealed those commitments, they would have raised doubts about the company's ability to meet its cash needs.
- Vivendi and the other defendants failed timely to disclose all of the material facts about Vivendi's investment in a fund that purchased a 2% stake in Elektrim Telekomunikacja Sp. zo.o (Telco), a Polish telecommunications company in which Vivendi already held a 49% stake.
All of the defendants consented to the settlements without admitting or denying the Commission's allegations. The settled action permanently enjoins Vivendi, Messier, and Hannezo from further violations of the federal securities laws and includes other substantial relief:
- Vivendi is required to pay a civil money penalty in the amount of $50 million and disgorgement of $1;
- Messier is required to relinquish his claim to a severance package of about â¬21 million, to pay a civil money penalty of $1,000,000, and disgorgement of $1;
- Hannezo is required to disgorge $148,149, and to pay a penalty of $120,000; and
- Messier and Hannezo are prohibited from serving as an officer or director of a public company for, respectively, 10 and 5 years.
The Commission intends to direct that disgorgement and penalties paid in this case be paid to defrauded investors, including those who held Vivendi's ordinary shares and its American Depository Shares during the time period alleged in the Commission's Complaint, pursuant to Section 308 (Fair Funds for Investors) of the Sarbanes-Oxley Act of 2002.
The â¬21 million payment, now valued at approximately $25 million (including interest), to which Messier is relinquishing his claim has already been placed in an escrow account as a result of the Commission's successful litigation pursuant to Section 1103 of the Sarbanes-Oxley of 2002. On the SEC's motion, the District Court in New York ordered Vivendi to place those funds in escrow on September 24, 2003.
The Commission acknowledges the cooperation of the United States Attorney's Office for the Southern District of New York and the Autorit© des marches financiers, formerly the Commission des Op©rations de Bourse. The Commission's investigation is continuing.
See also Litigation Release No. 18352 (September 16, 2003)
