(CN) - The 2nd Circuit upheld a May 2011 decision by a U.S. District judge that cleared CBS and its chief executive, Leslie Moonves, of securities fraud claims for failing to timely disclose a $14 billion writedown during the 2008 recession.
     Stock prices plummeted by 20 percent when the company announced it was taking the writedown. The Nebraska Civilian Employees' Retirement System and the Omaha Police and Fire Retirement System claimed Moonves and CBS should have taken action sooner and that they hid facts that might have alerted shareholders to a problem.
     "On October 10, 2008, CBS announced that it was performing an interim impairment test on its existing goodwill, and that, as a result, CBS expected to incur a non-cash impairment charge during the third quarter of approximately $14 billion," the ruling states. "Plaintiffs allege that defendants knew about the facts that led CBS to perform an interim impairment test much earlier than October 2008, so CBS should have performed the test and disclosed its results during the first or second quarter of 2008 - that is, no later than June 30, 2008. Thus, plaintiffs submit, defendants' statements about CBS's goodwill and its general financial condition during the first and second quarters of 2008 were knowingly and recklessly false."
     The shareholders claimed CBS knew of the gap between its book value and its market capitalization - which grew from $3.2 billion by year's end in 2007 to $8.8 billion by the end of the first quarter of 2008 - and that falling advertising revenue combined with negative outlooks offered by third-party analysts showed the company's financial status was in trouble.
     The U.S. Court of Appeals, however, said the information that would have led anyone to come to that conclusion was public knowledge and accessible to shareholders.
     "Also known to the public at pertinent times was that CBS's last impairment test occurred as part of the 2007 year-end financial reporting, before the appearance of the 'red flags,'" the ruling states. "According to the second amended complaint's own allegations, therefore, CBS's market price would at pertinent times have reflected the need for, if any, or culpable failure to undertake, if any, interim impairment testing. Under those circumstances, the second amended complaint does not allege in a plausible fashion that the market price of CBS stock was inflated by a fraud in failing to undertake interim impairment testing."
     The panel affirmed District Judge Kevin Castel's dismissal of the case for failure to state a claim.