Vivendi, Messier in SEC Accord

Vivendi Universal will pay a $50-million fine and former Chief Executive Jean-Marie Messier will relinquish a controversial $25-million severance package to settle charges that they misled investors about the media conglomerate’s financial problems.

Under a settlement reached with the Securities and Exchange Commission, Messier also will pay a $1-million fine and former Chief Financial Officer Guillaume Hannezo will be required to pay a $120,000 penalty and return $148,000.

Although the SEC is not requiring Vivendi to restate its earnings, it said that the company, under Messier’s watch, issued news releases that downplayed the media giant’s liquidity crunch and its debt levels.

The SEC, which conducted a 13-month probe, also cited improper adjustments that inflated the firm’s cash flow in 2001 to meet targets it had communicated to the market.

“Messier and Hannezo, Vivendi’s two most senior executives, failed in their responsibilities to Vivendi shareholders,” said David Nelson, director of the SEC’s Southeast Regional office in Miami. “Vivendi and its senior officers participated in a year-and-a-half-long effort to avoid acknowledging the company’s liquidity problem ... and deprived shareholders of accurate information.”

As part of the settlement, the defendants neither admitted nor denied allegations that they violated federal securities laws.

The SEC said the penalties and returned money would be paid to Vivendi’s “defrauded shareholders.”

The settlement stands as a coda to one of the wildest tenures in Hollywood history.

Messier led a three-year acquisition drive to transform Vivendi, a French water utility, into a rival to Time Warner Inc., then known as AOL Time Warner.

The strategy ultimately caused the company’s stock price to plummet and left Vivendi with massive debts. Messier was forced out in July 2002 and replaced by a new chief executive, Jean-Rene Fourtou, who sold off most of the company’s U.S. entertainment assets to General Electric Co. and returned Vivendi to financial health.

Shareholders, who have filed a class-action suit against Vivendi, welcomed the settlement. “It’s definitely a positive for shareholders who are seeking compensation for their losses,” said David Bershad, a New York attorney who is co-counsel in a class-action case pending in New York.

Vivendi and Messier both took some solace from the settlement agreement, which allows them to put to rest a bitter and costly legal fight that had become an embarrassment to Vivendi’s new stewards.

“We are pleased to close this chapter of our history ... and to continue to work for the benefit of our shareholders,” Fourtou said.

In a brief interview, Messier called the settlement “balanced and reasonable.”

The fine against Vivendi should have a negligible effect on corporate earnings, said Andrew Wallach, a managing partner with Cumberland Associates, an investor in Vivendi.

The penalty was in line with what investors and analysts had expected.

“A $50-million fine would have been unusual in the 1990s, but it’s standard in the new environment of heightened sanctions,” said Chris Bebel, a former SEC attorney who specializes in securities law in Houston.

For Messier, it could have been much worse, analysts said. The SEC did not level the more serious charge of insider trading. Among the allegations examined was whether Messier improperly benefited from inside information when he sold a large chunk of his shares shortly before the company’s stock price sank.

“It hits him in his pocketbook, but all things being equal, it’s a good settlement for him,” Bebel said. “It helps him move on.”

Under the settlement, Messier and Hannezo are barred from being an officer or board member of a public company for 10 and five years, respectively.

The settlement comes three months after the SEC took the unusual step of blocking a $25-million severance payment to Messier.

That action came one day after a New York state Supreme Court judge ordered Vivendi to pay Messier the money.

The judge was upholding an arbitration panel’s ruling that Vivendi was obligated to pay Messier under a termination agreement negotiated shortly before his ouster. Vivendi had refused to pay Messier’s severance, saying his severance contract hadn’t been approved by the board.

The SEC’s findings were similar to those from a recent probe of Vivendi’s finances by France’s stock market regulator. French authorities are considering possible fines against Messier. The U.S. attorney’s office in New York also is conducting an investigation of Vivendi and Messier.