They were accused of a "massive" $3 billion financial fraud between 1999 and 2002 and of benefiting from an inflated stock price.

Mr. Chanos, 42, takes no view about the likely direction of the market, but has not had much trouble these days finding unjustifiably inflated stocks.

He defines inflated stocks as those whose prices reflect discrepancies between investor perceptions and economic reality.

Fifteen years ago, the currency was junk bonds rather than inflated stock.

Investors, entranced with the concept and the rising stock price, began to buy the inflated stock.

They have provided good profits - albeit not as high as the inflated stock market gains - over the last three years.

Indeed, the company was built on fraud, using its inflated stock to make acquisitions and its kited balance sheet to borrow billions to fund growth and operations.

Investors who hold on to inflated stocks get to postpone paying taxes - in effect, receiving an interest-free loan from the Government.

But because JDS paid for the acquisitions with its own inflated stock, the red ink is largely a matter of accounting.

As one industry executive, who insisted on anonymity, put it: "For Vivendi, it is simply doing a deal with its inflated stock.