CBS Breathes a $14 Billion Sigh of Relief

CBS Corp. (NYSE:CBS) and CEO Leslie Moonves are not liable to shareholders for failing to more quickly disclose a $14 billion writedown at the height of the 2008 financial crisis, a federal appeals court ruled Thursday.

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Shareholders led by the City of Omaha and two Nebraska pension funds did not properly show CBS to have committed securities fraud by ignoring accounting standards for valuing good will, according to the 2nd U.S. Circuit Court of Appeals in New York.

The Financial Accounting Standards Board requires companies like CBS to examine whether to write down goodwill, sometimes known as taking a goodwill impairment. Goodwill reflects the difference between a company’s book value and a company’s value taken as a whole. Its book value is how much it could fetch in a liquidation, the value of all its assets, while goodwill also incorporates brand value, employee morale, and other intangibles.

Shareholders claimed CBS’s expectations for an economic slowdown and its falling market value and advertising revenue should have prompted the broadcast company to review goodwill at its television, radio, outdoor, publishing, and interactive units in early 2008, not, as it did, in the fourth quarter.

But a 3-judge panel said the shareholders did not have sufficient evidence to 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.”

The decision upholds an earlier ruling in May 2011 by U.S. District Judge Kevin Castel.

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