Read Major Case 5: Vivendi Universal on page 545 of your text under the Major Cases section.

Below is a synopsis of the case:

Some of my management decisions turned wrong, but fraud? Never, never, never (as cited in Mintz & Morris, 2013). This statement was made by the former CEO of Vivendi Universal, Jean-Marie Messier, as he took the stand in November 20, 2009, for a civil class action lawsuit brought against him, Vivendi Universal, and the former CFO, Guillaume Hannezo (Mintz & Morris, 2013).

The class action suit accused the company of hiding Vivendis true financial condition before a $46 billion three-way merger with Seagram Company and Canal Plus. The case was brought against Vivendi, Messier, and Hannezo after it was discovered that the firm was in a liquidity crisis and would have problems repaying its outstanding debt and operating expenses (contrary to the press releases by Messier, Hannezo, and other senior executives that the firm had excellent and strong liquidity); that it participated in earnings management to achieve earnings goals; and that it had failed to disclose debt obligations regarding two of the companys subsidiaries. The jury decided not to hold either Messier or Hannezo legally liable because scienter (i.e., knowledge of the falsehood) could not be proven. In other words, the court decided it could not be shown that the two officers acted with the intent to deceive other parties.

The stock price of the firm dropped 89%, from $111 on October 31, 2000, to $13 on August 16, 2002, over the period of fraudulent reporting and press releases to the media.

As you read the case, consider whether Messier was accurate in his belief that fraud was not committed and whether this was an ethics failure.

Once you have read the case, answer the following questions.

1. What is the purpose of Section 1103 of SOX from an ethical reasoning perspective?
2. Internal controls are established by management to help facilitate what behavior in an organization?
3. What describes the problems with internal controls at Vivendi with respect to its relationships with Cegetel and Maroc Telecom?