WARNER’S TWO BATTLEFRONTS : Paramount Filing Questions Ross’ Integrity, Cites Warner Scandal

The three-way takeover battle for Time Inc. took on a sharply more personal and bitter tone Thursday as Paramount Communications filed court papers questioning the integrity of Warner Communications Chairman Steven J. Ross and citing past prosecutions of Warner executives.

Responding to a Time lawsuit, Paramount said Time’s proposed merger with Warner would put Time in the hands of a company that was investigated for insider trading in 1982 and for criminal violations in the Westchester Premier Theater scandal of 1977. Ross “was involved in certain of those investigations,” said Paramount, contending that Time should have disclosed Warner’s past problems in its $14-billion tender offer for Warner.

Ross--still an important business partner of Paramount Chairman Martin S. Davis--denounced Paramount’s criticisms as “a thinly disguised and despicable act of desperation.” The episodes were “old and entirely irrelevant points that have long since been thoroughly aired both in public and in the courts,” Ross said in a statement.

Paramount’s court filing came in response to the suit Time filed in federal court in Manhattan last Friday that seeks to block Paramount’s bid. Paramount countersued, asking the court to block Time’s friendly $14-billion bid for Warner and to keep Time from interfering with its $10.7-billion bid.

Misconduct Alleged

Time earlier asserted in an Federal Communications Commission lawsuit that Paramount is unfit to hold an FCC license because of “misconduct” by Paramount and former subsidiaries and affiliates. Time Chairman J. Richard Munro has also contended that Davis broke his word by making the offer for Time.

Paramount cited the sales of Warner stock by Warner executives in late 1982 before the Dec. 8 disclosure of losses in Warner’s Atari home computer unit that sharply depressed Warner stock. Ross sold stock as late as Nov. 2, while Atari’s chief executive and executive vice president sold stock on Dec. 1 and Dec. 8, Paramount said in the court papers.

The insider sales “prompted meetings between Warner executives and the Securities and Exchange Commission,” Paramount said. Two Atari executives signed consent decrees with the SEC, but no other Warner officials were charged. Warner eventually sold the Atari unit.

Paramount also described the Westchester Premier Theater scandal, in which a now-defunct suburban New York theater gave Warner’s assistant treasurer $170,000 in return for his investment of Warner funds in the theater’s public offering. Three Warner executives and several organized crime figures were convicted in the scandal.

Paramount’s filing emphasized the assistant treasurer’s close personal and business ties to Ross, who was not charged in the case.

Ross and Davis had cordial relations before Paramount’s bid began and still have important business ties. The two firms are co-owners of the CinAmerica movie theater chain, which has 463 screens in nine states, including the Mann chain in Southern California.

In his statement, Ross said Paramount’s ethical challenge concerned “long since resolved and closed matters, as Mr. Davis knows quite well--since he has worked so long and hard to achieve an exclusive joint venture with me in the motion picture theater business.”

Paramount’s filing also questioned the “self-enrichment” of Ross, who it said stands to earn $180 million over the next eight years as a result of the Time-Warner deal.