Honestly, a Premiere dilemma

Shareholders sue German pay TV operator over admitted false figures

There's an expression in German, der Ehrliche ist der Dumme, which can be paraphrased, "Honesty is for idiots."

That's how Mark Williams, CEO of troubled German pay TV operation Premiere, must feel.

Two shareholders this week filed precedent-setting suits against Premiere for falsifying figures in 2005 and 2007 and claiming that it had about a million more subscribers than its actual tally.

The German stock-market authority also has gotten in on the act, launching an investigation of Premiere on suspicion of market manipulation and insider trading.

The thing is, Williams told everyone Premiere was cooking the books. After taking over as CEO in the fall, he cleaned house and ordered an internal audit.

When the report came in, Williams made it public: Premiere was going to take a big loss in 2008, debt was shooting up, and the company was close to collapse. Oh, and it only has 2.4 million subscribers, not 3.5 million. The extra subscribers were phantoms — those who had not activated subscriptions, those who had canceled but remained on the books and a few freeloading journalists.

Premiere shares nosedived. A suit was inevitable.

"None of this was mentioned before the IPO (in 2005) or before the 2007 capital increase," said Franz Braun, a lawyer representing the shareholders. "Investors have a right to compensation and damage claims."

Given the drastic drop in Premiere's share price — the stock traded at €30 on its initial public offering; this month, the company launched a new issue at €1.12 ($1.48) a share — potential claims could be huge.

For the moment, Premiere is not in danger. The shareholders who filed suit claim damages in the low thousands, nothing that would topple the company, and no additional claimants have come forward. But a decision in favor of those two — or, worse, legal action against former CEOs Georg Kofler and Michael Bornicke — could trigger an avalanche of lawsuits.

Premiere and Williams are have declined comment. (partialdiff)