NEW YORK—The lawsuit Motorola and Nokia brought last week against the owners of Telsim and the counterclaims in response have shone a spotlight on equipment vendor-financing practices of recent years and cast a shadow over Turkey’s efforts to revive its economy through foreign investment.
During the last week of January, Motorola and Nokia sued members of the Uzan family, which controls Turkey’s second-largest mobile carrier, alleging they violated federal racketeering laws by borrowing US$2.6 billion without intending to repay it. Under the Racketeer Influenced and Corrupt Organizations Act (RICO), the lawsuit asks for a damage award that triples the amount owed.
By mid-week, the U.S. District Court for the Southern District of New York had frozen temporarily the assets the Uzans hold in the United States. Several Uzan family members, who are top executives of Telsim, live in New York. The court also imposed a temporary restraining order preventing them from diluting their Telsim shares or transferring company assets.
“The Uzans, in April 2001, fraudulently diluted the value of Telesis’s shares that served as security for Motorola’s and Nokia’s loans … Motorola’s collateral decreased to 22 percent from 66 percent. Nokia’s/ABN-AMRO’s decreased to 2.5 percent from 7.5 percent … At the same time, Uzans’ Standart Telekom interest in Telsim increased from 0.32 percent to 66.48 percent … This is an illegal dilution of asset value and a transfer of value to Standart Telekom, a Uzan-controlled entity in which Nokia and Motorola don’t hold an interest,” the complaint said.
“As if this were not enough, on Jan. 4, 2002, in an attempt to ensure the money the Uzans stole from Motorola and Nokia would not be recovered, the Uzans staged another meeting of the Telsim board of directors in which actions were taken that further devalued collateral for the loans and also allowed for transfer of illegally obtained assets to a Turkish foundation … Because foundations in Turkey are subject to a separate legal regime under which it is significantly more difficult to dissolve or seize an entity, this may permit the Uzans to shift the assets of Telsim irretrievably beyond the reach of creditors.”
Telsim blamed its payment problems on the economic crisis that began a year ago in Turkey and said it had tried earlier in January to propose a resolution for the dispute over the nearly US$2 billion it owes Motorola.
Last June, Motorola declared Telsim in default on US$728 million in payments on the total of US$1.8 billion in credit it had extended. Nokia, which had guaranteed a US$800 million loan facility extended by the Stockholm, Sweden, branch of ABN-AMRO Bank, said last July it had stopped doing business with Telsim.
“Indeed, after each plaintiff’s deal collapsed, they realized they had been deceived by a series of nearly identical misrepresentations … Coupled with numerous other deceits by which defendants have defrauded other victims, this constitutes powerful proof such frauds are part of their pattern and practice,” their lawsuit said.
Turkish affiliates of Siemens and Ericsson, among other companies, have had similar problems in their business dealings with the Uzan family, according to the complaint.
U.S. government officials raised the issue of Telsim’s debt to Motorola and Nokia during the January visit to Washington, D.C., by Bulent Ecevit, prime minister of Turkey, the Financial Times reported. Concerns also have been raised in Turkey that the ongoing legal battle may put a damper on foreign investment in that country.
In recent weeks, the International Monetary Fund also has pressured Turkey to adopt reforms to render foreign investment easier and more transparent. In exchange, the IMF would add as much as US$12 billion to the current loan program of US$19 billion.
Turkey currently has four mobile operators—Telsim; Turkcell, in which Sonera has a 37.3-percent stake; Aria, which began service early last year and is partially owned by Telecom Italia Mobile; and the government-controlled Aycell, which began service at the end of 2001. Press reports last week said Turkey lost 1.5 million wireless subscribers during 2001 due to the country’s economic crisis, although demand for mobile services remains high due to a lack of reliable fixed-line infrastructure.
In a statement issued 1 February, Oktay Vural, communications minister of Turkey, said the governmental agency would not get involved in the dispute “because it is taking place on a legal stage,” Reuters reported.
Allegations by Motorola and Nokia “have no basis, neither in fact nor in law,” Telsim said in the 30 January edition of Star, a newspaper the Uzan media conglomerate also owns.
“Telsim has decided to open a damages case because Motorola’s undertakings in contracts related to the equipment it sold were not fulfilled. At this point, Telsim, in order to protect its rights, has also decided to start a legal process, as laid out in the agreements, under Swiss law and in keeping with international precedent,” the carrier statement said.
“Separately, Telsim and its shareholders will open damages cases related to the unfounded and painful allegations against them.”
According to the U.S. District Court lawsuit against the Telsim owners, Murat Hakan Uzan and Cem Cengiz Uzan last July filed criminal charges against certain executives of Motorola, Motorola Turkey and Nokia. They allege that these executives “engaged in blackmail, death threats and abduction against the Uzans, and that these executives have links to the Mafia and international terrorist organizations.” The Uzans also contend that New York-based Kroll Associates, an international investigative firm Nokia and Motorola hired, “specializes in kidnappings and ransoms.”
Besides calling these allegations “totally false and baseless,” the Motorola/Nokia suit also describes them as “an act of extortion and intimidation.” Before filing the criminal charges against Motorola executives last July, Murat Uzan threatened to lodge them in an e-mail he sent to Christopher B. Galvin, chairman and chief executive officer (CEO) of Motorola, and Keith J. Bane, executive vice president of global strategy and corporate development for Motorola.
Fatih Azami, another Telsim executive, told Nokia executives during a meeting last August that “Telsim would withdraw the criminal charges and restore Nokia’s diluted shares if Nokia renegotiated Telsim’s payment schedule,” the lawsuit said.
Motorola also has accused Murat and Cem Uzan of “procuring an employee of Motorola Turkey to hack into the Motorola Inc. computer system to intercept or attempt to intercept electronic communications.” GW
