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Edgar Bronfman Jr. convicted of insider trading

Warner Music Group Corporation Chief Executive Officer Edgar Bronfman Jr arrives at a Paris courthouse on June 2, 2010 in Paris, for the trial of seven former Vivendi SA executives. Universal ex-Chief Executive Officer Jean-Marie Messier faces charges of market manipulation, distributing false information and misuse of corporate funds, while Bronfman, who joined Vivendi as vice chairman when it acquired Seagram Co. in 2000, is accused of insider trading. The trial runs until June 25.

BERTRAND LANGLOIS/Bertrand Langlois/AFP/Getty Images

Edgar Bronfman Jr.'s roller-coaster career has included stints as a songwriter, film producer, booze baron, deal maker and music company boss. On Friday, criminal was added to the list.

Mr. Bronfman's conviction in a Paris court for trading on insider information dabs another dark mark on an executive career that has had many more downs than ups. The low point came in 2000, when Mr. Bronfman traded much of the family fortune for a big stake in Vivendi SA, only to see the French media giant go nearly bankrupt two years later.

His criminal conviction was related to Vivendi, where he was vice-chairman from 2000 to 2003. Mr. Bronfman, who is now 55 and chairman and CEO of Warner Music Group, was accused of improperly gaining $12.8-million (U.S.) for exercising stock options based on non-public information about a planned share sale. At the Paris hearing, three judges fined him €5-million, or about $6.7-million, and handed him a 15-month suspended prison sentence, meaning he will not be incarcerated.

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The same court also convicted Jean Marie-Messier, who was CEO of Vivendi at the time, of misleading investors. He was fined €150,000 and was given a three-year suspended prison sentence.

Both men said they would appeal the convictions, and their fines will be suspended until the outcome of the appeals. Mr. Bronfman said he was "disappointed" with the decision, pointing out that the Paris public prosecutor, Chantal de Leiris, last year recommended that the criminal charges be dropped for lack of evidence.

"As I have consistently stated, my trades were proper," he said in a statement.

While Warner continues to back Mr. Bronfman, his career hangs in the balance if only because Warner has hired Goldman Sachs to advise it on strategic options. They are said to include the outright sale of the company or its Warner-Chappell music publishing business, or the purchase of rival EMI Group, which is owned by Terra Firma Capital Partners, the British private equity fund controlled by Guy Hands.

Warner and EMI have been circling each other for years. In 2006, a year after Warner's initial public offering, EMI tried to buy Warner for $31 a share. The shares surged Friday, closing at $6.01, up 27.3 per cent, on reports that Warner might be on the auction block and had been approached by potential bidders, including the New York buyout firm Kohlberg Kravis Roberts.

The guilty verdict in the Vivendi case caps an inglorious career for Mr. Bronfman, even though he has won kudos for slowing the deterioration of Warner in an industry that is being torn apart by illegal music downloads, free file trading and artists who are unwilling to share their spoils with the music labels to the degree they used to.

He is the grandson of Samuel Bronfman, who with his brother Allan went into the distillery business and bought Joseph E. Seagram & Sons in 1927. During Prohibition in the United States, the Bronfmans sold liquor to bootleggers, who shipped it south of the border.

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From their Montreal base, the Bronfmans, led by Samuel, created one of the world's great liquor empires. Its range of brands included Chivas Regal, V.O., 7 Crown, Martell, Mumm Champagne, Glenlivet and Captain Morgan.

Edgar Bronfman Jr., the son of Samuel's son Edgar Bronfman Sr., took over the business after Samuel's death in 1971. One of Edgar Sr.'s coups was trading Seagram's stake in Conoco oil for a 19-per-cent investment in DuPont, the American chemical giant. The investment was eventually taken to 24 per cent and would provide much, sometimes most, of Seagram's income.

Edgar Jr. became Seagram's rising star in the late 1980s, even if he seemed an unlikely candidate - he did not attend university and spent his early years writing songs and producing films, among them The Border, starring Jack Nicholson.

Born and based in New York, Edgar Bronfman Jr. became Seagram's president in 1989 and CEO in 1994. One of his early moves was to cash in on the fruit juice craze through the purchase of Tropicana, which would become one of the world's top branded fruit juice companies. (It was sold to PepsiCo in 1998.)

But Mr. Bronfman could never resist the lure of Hollywood and the urge to reshape Seagram as an entertainment company. He persuaded DuPont to buy back Seagram's stake in the company for $9-billion and plowed the proceeds into MCA, the former Music Company of America; two record companies, PolyGram and Interscope; and other businesses. The assorted music and film holdings would come under the Universal umbrella. The strategy split the Bronfman family, with some members supporting Edgar Jr.'s radical new strategy and others decrying the loss of the relatively steady spirits and DuPont businesses.

The skeptics were proven right. In 2000, Mr. Bronfman sold the spirits business to Pernod Picard and merged Universal, his entertainment colossus, with Vivendi. Under Mr. Marie-Messier, Vivendi, too, was undergoing an unlikely and radical transformation, going from a water and waste-management utility to an entertainment and telecommunications group. Two dozen acquisitions later, Vivendi nearly collapsed under a crushing debt load, taking the Bronfman family fortune down with it.

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"The Vivendi disaster was as high-profile a humiliation as any businessman not sent to prison is likely to endure," wrote Fred Goodman in his recent book about Mr. Bronfman, Fortune's Fool.

In 2004, he surfaced as one of the main investors in Warner Music Group, which he and a group of private equity funds bought from Time Warner Inc. A year later, the initial public offering priced the shares at $14. It's been a downhill ride ever since, though the original investors made small fortunes through dividend payments.

While Warner Music, whose artists include Green Day, Madonna and Kid Rock, is losing money, it has performed less poorly than its peers and has managed to make a success of digital music sales, which are growing strongly.

Mr. Bronfman owns almost 5.2 per cent of Warner Music and would make millions if the company were taken out at a premium. While a merger or takeover of EMI has evidently been explored many times, music industry executives say that deals between music companies can be difficult because most leading artists have change-of-control provisions, meaning their contracts can be renegotiated if their label gets a new owner.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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