With Vivendi Universal SA on the edge of financial turmoil in 2002, Edgar Bronfman Jr. began selling shares in the company using inside knowledge that the business was in shambles, according to allegations made in a French court.
Mr. Bronfman, the former Vivendi vice-chairman and the music-loving heir to the fortune behind iconic Canadian liquor manufacturer Seagram, is one of seven ex-Vivendi executives now facing trial in Paris on charges that they misled investors. Also included is former chief executive officer Jean-Marie Messier, who left the company in 2002.
None of the allegations have been proven in court.
It is the latest chapter in the long unravelling of an entertainment empire that Mr. Bronfman envisioned would be powerful enough to take on AOL Time Warner, at a time when media companies were turning themselves into conglomerates spanning music, television, film and the Web.
In a deal led by Edgar, the Bronfman family sold the Seagram business to Vivendi in 2000 for $30-billion (U.S.) in stock.
In exchange, they received a 7.5-per-cent stake in the larger French company, a former water utility dating back to the Napoleonic era that had transformed itself into an entertainment juggernaut.
While Vivendi kept the entertainment assets, such as the Polygram record label, Seagram's liquor making business, started by Mr. Bronfman's grandfather, Samuel Bronfman, was sold as part of the deal. Edgar Bronfman Jr., a song writer with a love of the music scene, sought to turn the staid family business, which made the Bronfmans one of Canada's wealthiest names, into a powerful entertainment force around the world.
But the gamble backfired when the debt Vivendi took on from acquisitions - a buyout binge that included Hollywood film studio and record label Universal, and the French pay-TV station Canal-Plus - began to drag down the company. With the music industry under attack from online piracy and songs sold individually online, observers believed the Vivendi strategy was poorly timed.
Prosecutors believe Mr. Messier and other executives misrepresented the company's financial health to banks and shareholders. Mr. Bronfman, who is now CEO at Warner Music, is not included in those allegations but has been accused of selling the stock while knowing about problems.
Mr. Bronfman's lawyer, Thierry Marembert, issued a statement from France denying his client did anything wrong.
"We are just now reviewing the court filing, but as we've said all along Mr. Bronfman's transactions have at all times been proper and at no time did he contravene any French laws or regulations," Mr. Marambert said.
The probe began after shareholder complaints in 2002, and has centred around allegations of misleading balance sheets and financial forecasts issued by the company in 2000 and 2001.
In January, prosecutors in France recommended the case be thrown out amid concerns the evidence was not strong enough. That decision has been overturned by investigating magistrate Jean-Marie d'Huy.
Mr. Marambert cited the earlier recommendation by prosecutors in his defence of Mr. Bronfman. "In fact, the prosecutor had recommended that Mr. Bronfman not be referred for trial. As previously reported, Mr. Bronfman has co-operated fully with the authorities' inquiries regarding certain personal transactions that took place nearly eight years ago."
Vivendi has since sold off many of its entertainment assets to fix the balance sheet, including Universal. Vivendi executives are facing allegations in two countries. The company, along with Mr. Messier and chief financial officer Guillaume Hannezo, went on trial in New York this month to face allegations of lying to shareholders about the company's financial situation in 2001.