Vivendi SA asked a judge in New York today to dismiss a jury’s fraud verdict against the company or cut most of the $9.3 billion in damages sought by shareholders in light of a U.S. Supreme Court ruling.
A Manhattan federal court jury sided with investors in January, concluding that the world’s largest music company acted recklessly and inflated its shares. Jurors found that Paris- based Vivendi misled shareholders 57 times from 2000 to 2002 with upbeat statements that hid a liquidity crisis. The judge must eventually determine the amount to be awarded.
The U.S. Supreme Court ruled June 24 in an unrelated case that federal securities laws don’t protect foreign investors who buy stocks of non-U.S. companies on overseas exchanges. Vivendi argued today that the Manhattan trial judge should apply that ruling and limit the size of the class of plaintiffs. From 2000 to 2002, Americans held only 25 percent of Vivendi’s ordinary shares, according to the company.
The high court ruling “in our view precludes all claims by any purchasers of ordinary shares, common shares on any foreign exchange,” Paul Saunders, a lawyer for Vivendi, told U.S. District Judge Richard Holwell in Manhattan. “It has a dramatic effect on this case. It affects the jury’s verdict, it affects the definition of the class.”
1 Million Shareholders
Holwell didn’t immediately issue any rulings today. “There is quite a lot of work for the court to do,” he said. “My goal is to make a consolidated opinion and not do this piecemeal.”
Plaintiffs’ lawyers said after the verdict in the class- action suit in New York that investors could recover as much as $9.3 billion. They said more than 1 million shareholders are covered by the case, which went to trial in October.
Matthew Gluck, a lawyer for the plaintiffs, contended the Supreme Court’s ruling doesn’t affect either U.S. or foreign purchasers of Vivendi securities because the company’s ordinary shares were “listed on an American stock exchange.”
“It is our position the court need not consider” the ruling, Gluck said today.
The company said in court papers the high court’s June 24 decision in the case called Morrison v. National Australia Bank “will likely reduce potential damages by at least 80 percent and may reduce them significantly more.”
The company also asked the judge to dismiss the jury’s verdict outright on the grounds that it was “inconsistent” for jurors to find Vivendi liable while voting not to assign liability to former Chief Executive Officer Jean-Marie Messier and Guillaume Hannezo, the company’s former finance chief.
The company “believed, and continues to believe strongly, that it did nothing wrong,” Vivendi said in an e-mailed statement after the verdict. The company has also said it will appeal the verdict.
Jurors calculated the amount by which Vivendi securities were inflated. Amounts included 0.15 euros a share on Oct. 30, 2000, 11 euros a share on Jan. 2, 2002, and 1.75 euros a share on Aug. 13, 2002, jurors said. One euro is worth $1.30 at today’s exchange rate.
Jurors evaluated 57 public comments from October 2000 to June 2002. They determined whether each statement was false, and if so whether it was made by the company, Messier or Hannezo.
From 19 percent to 35 percent of shareholders typically submit claims in class-action suits, Saunders, of New York-based Cravath Swaine & Moore LLP, previously said, adding that it may be years before damages are determined.
Founded in 1800s
Vivendi was founded in France in the 1800s as a water utility. Its units now include the world’s largest music company, Universal Music Group, along with a video game company, pay-television operations and telecommunications, its largest business.
At the trial, plaintiffs’ attorney Arthur N. Abbey told jurors Vivendi hid debt stemming from a $77 billion acquisition spree in the 1990s that turned the company into a media and telecommunications giant.
Investors claimed to have lost billions of dollars when Vivendi’s true financial condition became public. Shares fell from 84.70 euros on Oct. 31, 2000, to 9.30 euros on Aug. 16, 2002, the period covered by the suit.
Vivendi’s lawyers denied there was a liquidity crisis at the company and accused the investors of distorting public comments made by company officials.
About two-thirds of the investors in the New York case are in France, according to Vivendi. Investors that sued include the Seventh Swedish National Pension Fund and Danske Invest Administration A/S, a Copenhagen-based mutual-fund manager.
Holwell in 2007 certified a class of “all persons from the United States, France, England and the Netherlands” who purchased American Depository Shares of Vivendi between Oct. 30, 2000, and Aug. 14, 2002.
Vivendi today asked Holwell to exclude purchasers of Vivendi ordinary shares and keep “only people from the U.S. France, England and the Netherlands who purchased Vivendi ADSs on the New York Stock Exchange.”
Vivendi agreed in 2003 to pay $50 million to settle U.S. Securities and Exchange Commission accusations of civil fraud, and Messier agreed to pay a $1 million fine.
The SEC claimed Vivendi issued misleading press releases under Messier and altered financial statements to make it appear the company was generating more cash than it actually was.
The case is In Re Vivendi Universal SA Securities Litigation, 02-cv-5571, U.S. District Court, Southern District of New York (Manhattan).