New York jury hears Vivendi shareholder lawsuit; class action includes European investors

NEW YORK — The Vivendi media group lied to the public by hiding its precarious financial condition early this decade, a lawyer for shareholders told a jury at the opening of a trial Tuesday. But a lawyer for the company said Vivendi acted properly.

Attorney Arthur Abbey outlined his case in U.S. District Court in Manhattan on behalf of thousands of investors from the United States, France, England and the Netherlands, saying Vivendi failed to tell the truth as its finances soured in 2001 and 2002.

He noted that Vivendi was a Paris-based public water company until it hired Jean-Marie Messier as its chief executive officer and chairman in 1996. Abbey said Messier, an investment banker, decided to build a media and communications empire through an ambitious acquisition spree.

As a result, Abbey said, the company experienced severe growing pains and a liquidity crisis, though shareholders were not told about it.

"What they said about themselves to the public was anything but the truth," Abbey said.

To illustrate the depth of the company's troubles, Abbey showed the jury warning statements made by former Vivendi Universal Chief Financial Officer Guillaume Hannezo.

In one, he noted that his warnings were not being heeded and said he had the "feeling of being in a car whose driver is accelerating in a sharp turn while I'm the one in the death seat."

Abbey said he was seeking unspecified damages for shareholders who bought shares in the company between Oct. 30, 2000, and Aug. 14, 2002, when the company swerved near bankruptcy before reorganizing successfully. He said shareholders include pension funds and he told the jury that the pension administrator for the city of Miami Beach, Florida, was at the plaintiffs' table.

Messier was forced out as CEO in July 2002, when the company was known as Vivendi Universal. Vivendi, Messier and Hannezo are defendants in the trial.

Vivendi's shares lost more than 80 percent of their value as the company ran up billions of dollars of debt in a buyout binge that included the Universal film studios and music label in the United States, European pay-TV station Canal Plus, a French publishing arm and the country's No.2 mobile operator. It sold many of its businesses, including Universal, to right itself.

Paul Saunders, a lawyer for Vivendi, said the company was fighting shareholder lawsuits "to regain our good name."

Although dozens of shareholder lawsuits are sometimes filed against companies whose fortunes and stock price suddenly decline, they rarely make it to trial. Most are dismissed or settled for amounts that result in large payouts to law firms and small payouts to investors.

"We will prove to you that the allegations made about Vivendi this morning are simply not true," Saunders said.

He said Vivendi will prove it has always had enough cash and credit to pay its bills, that it always has followed accounting rules and that the decline in its stock was not caused by the disclosure of any hidden liquidity risk.

He presented to the jury a chart showing that the company in December 2001 had more than $6 billion in cash and credit available to it to meet its obligations. He disputed the plaintiffs' claims that the financial picture that month proved there was a looming liquidity crisis.

"Does that look like a liquidity risk to you?" he asked the jury as he pointed at the chart.