Shareholders sue over charitable foundation
PARIS — French small shareholders body Appac launched a civil legal action Monday alleging insider trading following the revelation that a family trust belonging to Vivendi Universal chief executive Jean-Rene Fourtou took a massive undisclosed stake in a bond issue.
Allegations center around a charitable foundation funded by Fourtou and his wife Janelly, which purchased e14.5 million ($17.4 million) in Viv U bonds in November 2002. His children purchased a further $6 million.
At Monday’s share price of $23, the foundation is sitting on a notional profit of $9 million and the children on a $3 million gain.
The purchases were not illegal, but their size and the fact that Fourtou did not disclose them have surprised investors. A change to French law last August makes disclosure of such transactions obligatory in the future.
The lawsuit is embarrassing because Fourtou was brought into the conglom in July 2002 to clean it up after corporate governance scandals under his predecessor, Jean-Marie Messier.
The bond issue is under regulatory investigation, though Fourtou denies he is a subject of the probe.
The allegations come after a complicated string of events in fall 2002, in which Deutsche Bank is said to have sold Viv U shares to London investors below the market value, causing Viv U’s stock price to plummet one day before an arranged bond sale.
As a result of the lowered price, investors had the chance to buy more of the bonds.
One of the biggest private investors was the foundation created by Fourtou. He is said to have encouraged the foundation to sell its assets to invest in the Viv U bonds. To complicate matters, a few days after the bond sale, rumors of Martin Davis’ bid for Vivendi Universal’s American entertainment assets hit the press, causing the share price to rise 21%.
After complaints by a small-shareholders group, France’s market regulator at the time, the Commission des Operations de Bourse (COB), opened an investigation into possible insider trading and share price manipulation concerning the bond sale.
Fourtou was questioned by COB successor the Financial Markets Authority (AMF) in April 2003. While the regulator said at the time there was nothing illegal in the fact that the foundation did not disclose its purchase, the AMF has not yet concluded its investigation.
Both Vivendi and the AMF have refused to comment, but Fourtou broke his silence Sunday in an interview in the French press, denying that he is the subject of an insider trading probe.
“I have reason to think that today I’m no longer an object of the current investigation,” the Viv U topper said in weekly Le Journal du Dimanche. “In fact, the investigation seems to be centered around the comportment of certain financial institutions.”
Fourtou also dismissed the idea that his knowledge of Davis’ bid for VUE could be construed as insider information.
“He was never in the running. His proposal was never taken seriously, nor examined by the board,” he said. “But the fact that his proposal came several days after the end of the bond sale created certain disruptions,” the prexy added.