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(a), the Fair Funds provision of the Sarbanes-Oxley Act of 2002.
Linda Thomsen, Deputy Director of the Commission's Division of Enforcement, said, "This case shows the Commission's ongoing commitment to enforcing the disclosure obligations of issuers and it shows our successful use of a new enforcement tool provided by the Sarbanes-Oxley Act."
David Nelson, Director of the Commission's Southeast Regional Office in Miami, said, "Messier and Hannezo, Vivendi's two most senior executives, failed in their responsibilities to Vivendi's shareholders. Vivendi and its senior officers participated in a year and a half long effort to avoid acknowledging the company's liquidity problems and to meet EBITDA targets, and deprived shareholders of accurate information. Our lawsuit today demonstrates that even the most complex schemes involving foreign issuers will be uncovered and pursued."
Vivendi is a media and environmental services conglomerate based in Paris, France. During the relevant time, Vivendi was one of Europe's largest companies, had corporate offices in Paris and in New York, and had securities traded on the New York Stock Exchange. 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 interest, 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 complaint, filed today in the United States District Court for the Southern District of New York, includes the following allegations:
- During the relevant time period, 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 59 million during the second quarter of 2001 and by at least 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 €21 million, which includes back pay and bonuses for the first half of 2002, and to pay a civil money penalty of $1 million 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 21million 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 Commission's motion, the District Court in New York ordered Vivendi to place those funds in escrow on Sept. 24, 2003. This action represents the first resolution of a Section 1103 action, and demonstrates the Commission's commitment to use this new authority for the benefit of shareholders.
The Commission acknowledges the valuable cooperation of the United States Attorney's Office for the Southern District of New York and the Autorité des Marches Financiers (f/k/a the Commission des Opérations de Bourse). The Commission's investigation is continuing.
