Appeals Court Upholds Verdict Against Vivendi for Misleading Shareholders

On Tuesday, the 2nd Circuit Court of Appeals brought the latest word affirming that Vivendi violated securities law around the turn of the century by making false or misleading statements about the company's health. The company is now facing more than $50 million in damages.

The focus of the long-running litigation was Vivendi's transition from a French utilities conglomerate into a media powerhouse that went on a $77 billion buying spree under the leadership of Jean-Marie Messier including a merger with Canal Plus and the company that owned Universal Studios and Universal Music Group. The company also acquired USA Networks, Houghton Mifflin, MP3.com, Activision Blizzard and more. In 2000, credit-rating agencies expressed doubts about the credit-worthiness of Vivendi, but notwithstanding, the company expressed confidence about its growth. Behind the scenes, however, Vivendi's leaders had tense discussions about cash shortages.

After Vivendi's stock cratered, the possibility of bankruptcy loomed, and Messier resigned under pressure, lawsuits came. One came from Vivendi stakeholder Liberty Media (which resulted in a $775 million settlement) while numerous other investors also pursued the company. Eventually, this was consolidated.

A lawsuit that began in 2003 took more than a decade to get to trial in part because the Supreme Court took up the issue in a separate case about whether foreign shareholders who purchased foreign shares on foreign exchanges should be able to sue in American courts. The high court limited such actions in 2010, necessitating the removal all but U.S.-traded Vivendi stock. 

The Vivendi shareholder case resulted in two separate trial proceedings — in late 2009 and in late 2014 — that resulted in a judgment worth more than $40 milllion.

Today, the appeals court reviews the earlier one on the question of Vivendi's liability, and in a 91-page opinion, finds that plaintiffs identified false or misleading statements that were not subject to safe harbor provisions for "forward-looking statements."

U.S. Circuit Judge Debra Ann Livingston writes that there was sufficient evidence for the jury to find 56 relevant statements false or misleading in regards to Vivendi's liquidity risk and blesses the way the plaintiffs tried their case.

"Vivendi’s alleged fraud (in the jury’s reasonable estimation) is remarkable in part because the problem that Vivendi sought to conceal from the public was so vast, and touched upon so many aspects of its business, that a few scattered misstatements would not have sufficed to mask it," she wrote. "Vivendi needed both to systematically misrepresent its ability to satisfy its liquidity demands, and also to assiduously conceal any material facts (of which there were many) that would call into question its ability to meet its liquidity demands."

Here's the full opinion.

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