CBS Corp. and its chief executive, Leslie Moonves, are not liable to shareholders for failing to more quickly disclose that the company would take a writedown of $14 billion at the height of the 2008 financial crisis, a federal appeals court ruled on Thursday.
The 2nd U.S. Circuit Court of Appeals in New York said shareholders led by the City of Omaha and two Nebraska pension funds did not properly show that CBS committed securities fraud by ignoring accounting standards for valuing goodwill.
CBS shares plummeted 20 percent on October 10, 2008, when the New York-based media company announced the writedown and said fast-declining ad sales would crimp profit.
Companies such as CBS are required by the Financial Accounting Standards Board to examine whether to write down goodwill, sometimes known as taking a goodwill impairment.
Goodwill reflects the difference between a company's value taken as a whole and the company's book value, or how much its assets could fetch in a liquidation. It incorporates brand value, employee morale and other intangibles.
Shareholders said CBS' expectations for an economic slowdown, together with its falling market value and advertising revenue, should have prompted the company to review goodwill at its television, radio, outdoor, publishing and interactive units in early 2008, not the fourth quarter.
But a three-judge 2nd Circuit panel said the shareholders did not plausibly show that CBS should have reviewed goodwill sooner.
"All of the information alleged to constitute 'red flags' ... were matters of public knowledge," the court said.
"CBS's market price would at all pertinent times have reflected the need for, if any, or culpable failure to undertake, if any, interim impairment testing.... That being the case, the second amended complaint does not sufficiently allege reliance upon a fraudulently inflated price."
Thursday's decision upheld a May 2011 ruling by U.S. District Judge Kevin Castel in Manhattan.
Allen Carney, a lawyer for the plaintiffs, did not immediately respond to a request for comment. CBS spokeswoman Shannon Jacobs declined to comment.
The case is City of Omaha et al v. CBS Corp et al, 2nd U.S. Circuit Court of Appeals, No. 11-2575.
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