CBS Shareholders Update Lawsuit To Flag $200M In Stock Sales In Allegedly “Fraudulent Scheme” By Management

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A shareholder lawsuit filed last summer against CBS and several of its current and former leaders has been amended to charge that $200 million in stock was unloaded by insiders who knew the company would face serious exposure in the second half of 2018.

The share sales were “timed to capitalize on CBS’s inflated stock price before defendant [Les] Moonves’s misconduct and the pervasive sexual harassment that permeated the company was revealed to the market,” the complaint alleges. The suit says the company’s declaration of a “zero-tolerance” policy against sexual harassment and other public assertions were contradicted by Ronan Farrow’s New Yorker exposés and later New York Times reports, amounting to a “fraudulent scheme.”

Led by shareholders Gene Samit and John Lantz, the putative class-action suit names CBS as well as ex-CEO Moonves, acting CEO Joe Ianniello, former Chief Accounting Officer Lawrence Liding (now head of China operations) and former CBS News chief David Rhodes among defendants. Shari Redstone, head of controlling shareholder National Amusements, is also named as a defendant. Originally filed last August in U.S. District Court in New York’s Southern District, it was amended Monday to reflect a more comprehensive scope.

CBS Corp

The suit focuses on a “class period” from September 26, 2016 to December 4, 2018. During this span, CBS shares hit an all-time high of $69.36 (in March 2017) before dropping to $51.35. They would plunge to $41.38 later in December 2018, but have since recovered to trade above $48 in recent sessions.

“CBS was steeped in a culture of sexual harassment, intimidation and retaliation” by late September of 2016, the complaint alleges. Company officials and directors had evidence of systemic issues not just pertaining to Moonves but also at CBS News and other operations, including certain primetime and late-night series as well as joint ventures such as the CW and cable network Pop. The lack of transparency and candor by executives and board members, the suit says, caused CBS shares to trade at “artificially inflated” levels, benefiting insiders who got rid of shares before the #MeToo allegations started piling up.

“CBS has in place clear policies and procedures relating to CBS stock sales by senior executives of the company,” CBS responded in a statement provided to Deadline. “Executives who possess material information about CBS that has not been made public may not use that information in selling CBS stock. The vast majority of sales mentioned in this complaint were made as part of pre-planned selling arrangements designed to comply with applicable securities laws. The remaining sales were subject to CBS’ customary pre-clearance policies and procedures and were properly disclosed. While it would not be appropriate to comment on ongoing litigation, we believe that our policies and procedures are fully in compliance with law.”

Moonves, Ianniello, Liding and Chief Communications Officer Gil Schwartz among them sold more than 3.4 million shares of CBS stock during the period, netting more than $200 million. The sellers foisted the shares upon “the unsuspecting investing public while in possession of material non-public information, thereby profiting from their failure to disclose the truth to the market,” the complaint insists. It describes the timing of the share sales “unusual and suspicious.”

Moonves commanded the bulk of the proceeds, about $155 million — one-third of which came between December 2017 and May 2018, when he was aware of a Los Angeles police investigation into his conduct and also numerous press inquiries. Ianniello came away with $28.9 million and Schwartz $15.2 million, the complaint says. Schwartz sold $8.8 million in shares on June 14, 2018, about six weeks before the publication of Farrow’s first article.

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