We wrote last week about Viacom’s corporate irresponsibility, and about being on the lookout for insider trading at Viacom in the midst of Rathergate, but to be honest, we were just looking for a clever angle. Now it turns out that both have come to pass at the Chairman and CEO level of the parent company of CBS.
We hear, via our friend Thomas Lifson at The American Thinker that Sumner Redstone exercised one third of his options and dumped $12 million in Viacom stock on September 14 at $35 per share. Here’s the SEC filing as well as the link from Precise Truth.
It appears likley that Redstone was in possession of material inside information, both about the cover-up in process by Dan Rather and CBS News (see the Washington Post article and devastating chart of Sunday), and that, unknown to the public, Rather’s ratings had taken a nose-dive, as publicly reported by Matt Drudge on Thursday, 9/16/04, two days after Redstone sold his stock.
In addition, Redstone undoubtedly had inside information at the intense dissatisfaction of CBS affiliates which was not publicly available, although some of it now has reached Jim Geraghty at National Review.
Here is a chart of the stock price of Viacom’s B shares:
After Redstone sold his stock, Viacom never saw $35 again.
Viacom trades about 6 million shares a day, so 18 million or so shares have traded at lower prices than Redstone sold his for. What on earth was Sumner Redstone thinking in the post Martha Stewart world? As wealthy and as large a shareholder as Redstone continues to be, why create another potential public relations problem?
Where is the Viacom board of directors, by the way? Viacom’s board is not impressive for a company of its size, but it does have some seasoned, independent directors, including Ace Greenberg, the ex-head of Bear Stearns, Joseph Califano, and William Cohen. Time to wake up, gentlemen, and take charge. Boards often designate independent committees to investigate potential scandals like Rathergate and this insider trading kerfuffle, but Viacom’s has done nothing so far. Boards of directors of public companies, particularly in our Sarbanes-Oxley world, have the obligation to act like Johnson & Johnson in the Tylenol crisis, not like Arthur Andersen or Enron.
A Failure of the Legal Oversight Process at Viacom?
The normal process in a large public corporation for the selling of shares by executives is that there is a window for doing so every quarter. Typically, the General Counsel’s office would have been notified and would have signed off well in advance of the proposed sale, which might be taking place for any number of reasons, like paying quarterly taxes or a particularly large capital expenditure. In the case of Viacom, if we assume the normal steps were taken, a question becomes: when was company counsel brought into the loop of the seriousness of the matters at stake in the Rathergate forged memos?
What matters were kept from counsel that might have prevented a sale from taking place: (1) CBS’s internal conviction that the memos were phony despite their protestations to the outside world? (2) a linkage between Ben Barnes, Dan Rather, the memos and the Kerry campaign that could be embarrassing or worse for CBS? (3) the precipitous decline in Rather’s ratings and its commercial implications, none of which had been publicly disclosed? (4) the extreme unhappiness of some CBS affiliates, which could have further negative commercial implications for the CBS Evening News, or other CBS products, none of which had been publicly disclosed? (5) or perhaps other matters regarding the memos and Rather which we do not know about as of now?
This stock sale by Redstone, as well as the Rathergate scandal in which it took place, are serious matters requiring engagement and investigation by the Viacom board of directors.
The stock sale by Redstone does not appear to be a routine sale under a SEC Rule 10b5-1 Plan, which automates a process of periodic sales of stock by executives in their own companies, as Professor Bainbridge has suggested. According to the data provided by Edgar Online, Redstone has had no sales of Viacom shares over the past two years, other than those of September 14, 2004. By contrast, he has been a very active trader in shares of other companies in which he is an insider, according to SEC records.