The City of Omaha, as lead plaintiff, had sought to hold CBS Corporation and its top executives liable for damages under alleged acts of securities fraud related to impairment charges taken in October 2008. But a federal judge in New York has now dismissed the purported class action lawsuit.
The City of Omaha, Nebraska Civilian Employees’ Retirement System and City of Omaha Police and Fire Retirement System had sought damages for themselves and for everyone else who bought shares of CBS stock between February 26 and October 10, 2008. They claimed that CBS had violated federal securities law by not taking an impairment charge to goodwill value in the first quarter of 2008 – and that waiting until October to take the charge was timed for the personal benefit of Sumner Redstone, the company’s Chairman, who was also named as a defendant. The plaintiffs claimed that CBS maintained an inflated stock price so Redstone’s National Amusements Inc. (NAI) could stay in compliance with covenants on $1.6 billion in loans. When the stock prices of both CBS and Viacom were beaten down anyway by the recession, Redstone had to sell shares of both companies to pay NAI creditors. Only then, the suit maintained, did CBS take the impairment charge, because it could no longer protect Redstone.
CBS Corporation CEO Les Moonves and then-CFO Fred Reynolds were also named as defendants. The lawsuit accused them of making false and misleading statements about the financial health of CBS prior to the impairment write-down.
“The securities laws do not provide a cause of action premised upon a hindsight review of faulty predictions as to business success,” US District Judge P. Kevin Castel wrote in his opinion, concluding that the plaintiffs had failed to make the case that the timing of the write-down amounted to fraud. He didn’t buy the argument that CBS was required to take the impairment charge earlier than it did, nor that CBS shareholders were defrauded by not being informed about terms of the loans to NAI – the company through which Redstone controls both CBS and Viacom.