MANHATTAN (CN) – CBS inflated its stock price by $14 billion to help majority shareholder Sumner Redstone avoid payments on a loan, shareholders claim in Federal Court. They say CBS stock plunged by 20 percent on the day the company announced the swindle.
Lead plaintiff Curt Hatcher claims Redstone borrowed $1.6 billion through National Amusements, a movie theater-operating company he owns with his daughter. The loan was allegedly secured with an agreement requiring Redstone to make multimillion-dollar payments on the loan if CBS stock fell below a certain value.
In order to help Redstone avoid his payments, CBS’ board of directors and executives ignored huge drops in intangible assets like goodwill and Federal Communication Commission licenses when calculating its assets, the lawsuit states.
This scheme allowed CBS to inflate its worth by $14 billion – one-third of the company’s total assets – while simultaneously trumpeting its “strong” and “pristine” balance sheet, the shareholders claim.
Redstone, chairman of both CBS and its subsidiary Viacom, allegedly refused to let CBS record the hit it took when its goodwill assets declined. That announcement would have required him to begin payments on the loan he took out through National Amusements, which he reportedly inherited from his father, the suit claims.
In July 2008, market turmoil had already dropped CBS stock to a historic low, the shareholders claim. That month, the company made its announcement, dropping the news of $14 billion in overvalued goodwill assets on the shaky stock market, according to the lawsuit.
CBS stock dropped 20 percent that day, the complaint states.
Shareholders say the announcement also forced Redstone to sell $233 million of his CBS stock in order to pay National Amusement’s creditors.
The shareholders sued CBS; Redstone; his daughter, Shari Redstone; CBS president and CEO Leslie Moonves; CBS CFO Fredric Reynolds; David Andelman; CBS Senior Vice President Susan Gordon; and board members Joseph Califano Jr., William Cohen, Gary Countryman, Charles Gifford, Leonard Goldberg, Bruce Gordon, Linda Griego, Arnold Kopelson, Doug Morris and Fred Salerno.
They demand damages and restitution, plus an order requiring CBS to reform corporate governance and board oversight.
Lead attorneys Robert Harwood and Daniella Quitt with Harwood Feffer represented the shareholders in their lawsuit for breach of fiduciary duty and unjust enrichment.