As CBS tries to forget Les Moonves, its disgraced ex-C.E.O., an even more portentous question hangs over the $20 billion company. It’s not the issue of Moonves’s potential $120 million severance, which could provide a humiliating coda to his resignation, or the search for his successor, or even the labyrinthine legal squabble about the issuance of dilutive dividends between the CBS board and the Redstone family, the company’s controlling shareholder, which was dropped when Moonves agreed to step down. Rather, it is a separate legal case winding its way through a California court that threatens to make the Moonves scandal an anecdote in the broader fight over the future of CBS.
Since 2015, Sumner Redstone’s ex-girlfriend, Manuela Herzer, has been battling to have herself reinstated into his will, arguing that Sumner, the family’s 95-year-old patriarch, was mentally incapable of exiling her, and that Sumner’s daughter, Shari, had manipulated him into removing her from his estate. A related federal RICO lawsuit was dismissed in July, but Herzer is still seeking damages in state court that could amount to tens of millions of dollars. More important, from the point of view of CBS shareholders, the case could prove that Sumner—who is immobile and is relegated to poking “yes,” “no,” and “**** you” buttons on his iPad—was not of sound mind when Shari assumed control of his media empire nearly three years ago.
Concerns over Sumner’s competency may not be limited to the CBS boardroom, either. Earlier this month, a federal grand jury in California was convened to assemble evidence regarding the various lawsuits brought by Manuela Herzer in several courts against Sumner Redstone, Shari Redstone and Tyler Korff, one of Shari’s sons. The grand jury, which appears to be weighing possible criminal tax-related violations, issued subpoenas on September 7 to law firms representing Herzer, according to a source who has seen one of the subpoenas. The subpoenas, according to this person, demand that the law firms “turn over” by September 26, “any and all (non-privileged) materials, written, digital, video, audio or other, specifically including but not limited to any and all such documents produced or exchanged in any state, federal, probate, or administrative proceeding involving or related to Sumner Redstone, Shari Redstone, Tyler Korff, or Manuela Herzer.” If the law firms do not voluntarily comply, lawyers at the firms could be required to appear before the grand jury.
It is too soon to say what California prosecutors are hoping to learn. While grand juries most often end with an indictment, they are also used as investigatory tools to subpoena documents and compel testimony under oath. That could present a major legal headache for the Redstones, depending on what information is uncovered. The investigation could, for example, help resolve how Shari was able to take over her father’s throne in 2016, given that Sumner is still alive and that the trust he established to pass control of National Amusements, the family holding company, has likely not yet gone into effect. Another possibility, the source speculated, is that the I.R.S. and the Justice Department are interested in whether Shari obtained her family’s nearly 80 percent voting stakes in both CBS and Viacom in accordance with existing tax laws. According to the subpoenas, the case is being led by Nicola Hanna, the U.S. attorney in the Central District of California, and John Kucera, an assistant U.S. attorney in the same jurisdiction, along with Robert Liu, a special agent at the I.R.S. in the Criminal Investigation unit that investigates “potential criminal violations of the Internal Revenue Code and related financial crimes,” according to the I.R.S. Web site.
Nobody involved in the grand-jury tax case is talking. Neither Hanna nor Kucera would comment; reached by telephone, Liu declined to comment on an ongoing investigation. Sara Evans, a spokesman for Shari Redstone, declined to comment. Attorneys at Bird Marella, in Los Angeles, who are representing Herzer in her ongoing civil lawsuit, declined to comment, as did Ronald Richards, who represented Herzer in her since-dismissed criminal-conspiracy lawsuit against the Redstones. CBS also declined to comment about the subpoena. Robert Klieger, an attorney for the Redstones who is also a CBS board member, did not respond to a request. He has long maintained that he sees Sumner Redstone regularly, that he “FaceTimes” with him, and that Sumner is competent to make the decisions that he has been making in recent years.
The grand jury’s criminal tax investigation could provide the latest stunning jolt to CBS, a company already reeling from the sudden departures of Moonves, its longtime C.E.O., and of Jeff Fager, the longtime head of CBS’s hugely successful 60 Minutes division. Whether or not Shari could face any legal exposure, the I.R.S. investigation once again returns to the forefront the question of how she took effective control of her father’s media empire, despite his apparent incapacity and his stated aversion—repeated both publicly and privately—to having her take any active role in running CBS or Viacom, which she has done with alacrity in the past few years. Not only has Shari tried twice in the past two years to re-merge CBS and Viacom—against the express wishes of her father, who separated the two companies in 2006—but she has also remade the Viacom board of directors with members expressly loyal to her. What’s more, as a consequence of the agreement that resulted in Moonves’s sudden departure from CBS on September 10, Shari removed four CBS board members and replaced them with four new ones, who will now, presumably, be even more loyal to her than the ones she replaced. Shari also agreed, as part of Moonves’s departure, not to have National Amusements initiate a merger between CBS and Viacom for another two years, although that doesn’t mean board members at each company could not initiate such a merger before then.
