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Vivendi, Former CEO Settle Fraud Charges

SEC to Give $75 Million to Shareholders

Dec 24, 2003 | Washington Post

Vivendi Universal SA, the French conglomerate, agreed yesterday to pay a $50 million penalty and its former chief executive, Jean-Marie Messier, said he would surrender his $25 million severance payment as part of a settlement with the Securities and Exchange Commission to resolve securities fraud charges.

The deal follows government claims that Vivendi and several executives misled investors about the deteriorating financial condition of the media and environmental services company during a year-and-a-half period beginning in 2001.

The SEC said it plans to distribute the $50 million penalty and the $25 million forfeited by Messier to investors who lost money in the company. In addition to giving up his severance payment, Messier also agreed to pay a fine of $1 million.

Although Vivendi was based in Paris, it had extensive holdings in the United States and was publicly traded here. Under the settlement, neither the company nor the executives admitted or denied any wrongdoing.

"We are pleased to close this chapter of our history, to put this matter behind us and to continue to work for the benefit of our shareholders," Vivendi Universal chief executive Jean-René Fourtou said in a prepared statement.

Messier waged a protracted battle to keep his severance. "The resolution of the SEC proceeding represents a personal sacrifice to me, but it is a considerable consolation that the funds will be used to benefit Vivendi shareholders," he said in a prepared statement reported by Bloomberg News.

The SEC's decision to hand the penalties and other money to investors harmed by the company's alleged misdeeds is part of a growing trend. WorldCom Inc. agreed to pay investors who lost money as a result of its massive fraud $750 million as part of its settlement with the SEC. Alliance Capital Management LP agreed to pay its mutual fund customers $250 million as a result of an agreement with the SEC and New York state Attorney General Eliot L. Spitzer.

Messier led Vivendi, once a traditional French water utility, on a $77 billion global acquisition binge. Among his biggest purchases was the Universal media empire, which includes movie and television studios, the world's largest music company, theme parks, the USA Network and the Sci Fi Channel.

But Messier's efforts to build a media empire fell short. The company teetered on the brink of bankruptcy as it struggled to manage its $33 billion debt. In September Vivendi agreed to merge its media assets with NBC.

The SEC alleged that Messier and other executives, including former chief financial officer Guillaume Hannezo, disguised the company's ailing financial condition in statements to investors and analysts. According to the SEC, Messier and Hannezo falsely characterized the company's liquidity and cash flow as "excellent" or "strong" in public comments. The SEC also charged Vivendi with failing to disclose in regulatory filings large financial commitments owed by subsidiaries.

"If Vivendi had revealed those commitments, they would have raised doubts about the company's ability to meet its cash needs," the SEC said in a statement released yesterday.

Vivendi Universal, however, noted that the SEC is not requiring the company to restate any of its past financial statements.

Messier resigned as chief executive at Vivendi in July 2002, about 18 months after buying Universal. During his brief tenure as a media tycoon, Messier was known for his excess, including his $17.5 million apartment in New York and the hanging of a painting of famed abstract artist Mark Rothko in his New York office. After Messier's departure, the painting was sold at auction for $6.7 million.

In the days before he left the company, Messier negotiated a severance package now worth $25 million. Vivendi later tried to reclaim the severance, but was rebuffed by a three-member arbitration panel in New York in July. As part of a settlement with Messier, the company said it will pay Messier's lawyers a portion of their legal fees and expenses.

Under the government settlement, Messier is also barred from serving as a director of a public company for 10 years. Hannezo agreed to give up $148,149 in earnings and to pay a penalty of $120,000. Hannezo may not serve as a director for five years.

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