Vivendi Faces U.S. Attorney and SEC Probes

Already under scrutiny by authorities in Paris over whether it concealed a financial crisis, Vivendi Universal on Monday confirmed that it also is the target of a criminal investigation by the U.S. attorney’s office in New York and a probe by the U.S. Securities and Exchange Commission.

The investigations are further complicating efforts to restore confidence in the French media giant and are expected to parallel similar inquiries already underway in France, sources familiar with the probes said. French prosecutors last week opened an investigation into whether the company published “false accounts” for 2000 and 2001 to hide its cash crunch from investors. France’s stock market regulator also is examining financial information that Vivendi has released since January 2001.

Vivendi described the investigation by the U.S. attorney’s office in the Southern District of New York as preliminary and said the SEC’s Miami office will be coordinating its own probe with federal prosecutors.

Vivendi promised to cooperate fully with investigators and declined to provide further details.

In their investigations, U.S. authorities are expected to focus on a series of stock transactions former Vivendi Chief Executive Jean-Marie Messier reportedly made to bolster Vivendi’s lagging share price without the knowledge of Vivendi’s board of directors and former Chief Financial Officer Guillaume Hannezo, sources familiar with the probes said.

The probes, they said, also probably will examine whether Messier misled investors by, among other things, issuing a statement June 26 emphatically denying that Vivendi faced any liquidity problems. Just a week later, Messier was ousted, and new CEO Jean-Rene Fourtou declared that Vivendi was on the verge of defaulting on its bank loans. Credit firms quickly lowered the company’s rating to “junk” status on concern the conglomerate was running out of cash.

The French and U.S. investigations follow a series of news reports and 16 shareholder lawsuits and complaints filed in France, California and New York centering on Messier’s activities.

The flamboyant executive pushed Vivendi to spend more than $70 billion in three years to transform a staid water utility into a rival of media giant AOL Time Warner Inc., with assets including Universal’s movie studio, theme parks and leading music labels.

But the strategy puzzled investors and left the company with crippling media debts of $19 billion and the worst loss in French corporate history, triggering an 80% slide in Vivendi’s stock price this year. Vivendi shares closed Monday at $12.05, down 43 cents, on the New York Stock Exchange.

Messier, who has since launched his own private equity investment firm, declined to comment on the U.S. investigations.

Messier’s attorney, Olivier Metzner, said last week that his client did nothing wrong. In an interview last month, Messier would not answer specific questions about Vivendi’s financial crisis, but said neither its lenders nor anyone at the company thought Vivendi Universal was facing a solvency problem. He suggested that the company’s financial crisis was largely created by unfavorable media reports and market rumors.

Paul Kim, a media analyst with Kaufman Bros., said the revelations about the new investigations were alarming. “This raises the level of questions about the company,” he said. “It opens a whole new can of worms.”

Vivendi said in September that PricewaterhouseCoopers had studied its accounting and had not found any evidence of irregularities.

The widening investigations come at an especially bad time for Fourtou, who has been working hard to restore investor confidence in Vivendi and improve the company’s balance sheet by unloading some of the businesses Messier cobbled together.

Last week, Vivendi agreed to sell U.S. publisher Houghton Mifflin Co. to a group of investors led by Blackstone Group for about $1.75 billion in cash and assumed debt. Last month, the company sold the rest of its publishing business to Lagardere for about $1.25 billion.

But in recent weeks, Fourtou has reversed course and made some investors nervous by weighing whether to wage a bidding war with British cell phone giant Vodafone for French telecom operator Cegetel. Last week, Vivendi’s board rejected as inadequate a $6.7-billion offer that Vodafone made for its 44% stake in Cegetel.

The U.S. attorney’s office for the Southern District of New York is handling other high-profile cases, including a probe into allegations of securities fraud by former officers of WorldCom Inc.

It was not immediately clear why the SEC is conducting its probe out of the Miami office. Vivendi’s only business in that area, other than the Universal theme parks in Orlando, Fla., is a firm in Delray Beach that processes paychecks and expenses for Vivendi’s U.S. employees. Some industry insiders believe that the SEC may have handed the investigation over to Miami because its New York office has a backlog of cases.

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Times staff writers Corie Brown and James Bates contributed to this report.