NEW YORK-The Uzan family, which controls Telsim, Turkey’s second-largest mobile carrier, will most likely be found guilty of fraud for failing to repay US$2.7 billion in equipment vendor loans from Motorola and Nokia, said federal Judge Jed Rakoff.
“The court’s familiarity with the history makes it an open-and-shut case with respect to the bulk of the damages sought, if not the entirety of the damages,” Rakoff said last week in U.S. District Court for the Southern District of New York.
The judge said he expects to issue a written decision quickly and implied he could hand down his ruling as early as the end of this month.
Rakoff has presided over a series of evidentiary hearings since early last year when Motorola and Nokia filed the suit, alleging the Uzans violated the Racketeer Influenced and Corrupt Organizations (RICO) Act for borrowing the money without ever intending to repay it. Their claim seeks the maximum triple damages award automatically authorized under RICO. The Uzans have failed to appear for most of the proceedings, including court-ordered depositions, and have failed to turn over many documents Motorola and Nokia have sought to buttress their case.
Judge Rakoff also said he plans to cite the Uzans for contempt of court and sentence them to arrest and jail time “for coercive purposes . because it is clear the defendants do not now, nor ever had at any time, any intention to comply with material orders of this court and are also prepared to go to the length of perverting the processes of justice in other courts in other places to try to erect a phantasmagorial cover for their contemptuous actions.”
London’s High Court sentenced media mogul Cem Uzan in absentia to 15 months in prison after he failed to appear for a 20 December, 2002, hearing in a similar case Motorola and Nokia brought against the Uzans there. Uzan’s father, Kemal, and his brother, Hakan, also were no-shows at a 20 January hearing before the High Court.
The United States and the United Kingdom have extradition treaties, “so the Uzans can’t freely travel to the U.S. or the U.K. without getting arrested,” said Steven Davidson, one of the Washington, D.C., attorneys representing Motorola.
Referring to the Uzans, who did not appear for the one-day trial, Judge Rakoff said in his closing remarks: “The bottom-line conclusions are so overwhelmingly supported by the evidence that it’s hard to escape the inference that the single biggest reason the defendants are not here is they knew from day one they had committed a huge fraud, which has been exposed and identified, and their best defense is obfuscation, allegations of bias, perversion through collusion of the processes in courts here and elsewhere, everything but addressing the matter on its merits.”
In making his determination about the size of the damage award, the judge said he had to take into account a variety of factors, some of them contradictory.
“It is patently clear-cut there were numerous fraudulent misrepresentations made throughout the period of fraud, in addition to other acts of racketeering. But it’s not quite as clear whether the fraud, as the plaintiffs contend, was intended from the very outset. If it did commence sometime after the outset, that could affect the damages calculation,” Rakoff said.
“Ironically, I’m not sure if the amount of diversion (of loaned money to other entities and purposes outside Telsim) is material to the calculation of damages.”
Even if the Uzans used some of the money they borrowed from Motorola and Nokia for its intended purpose in building Telsim’s wireless network, the fact that they did not repay their loan is all that the RICO statute requires for the assessment of treble damages, the judge said.
Citing a report he prepared for Motorola and Nokia, Antony Samuel, a PricewaterhouseCoopers’ accountant, testified 19 February he estimates the Telsim owners diverted US$583 million of the borrowed money to other entities they controlled, including one in Curacao. He also said there is approximately US$552 million of the borrowed sum “whose use or application was not explained.”
“You’re saying Telsim was being used as a piggybank for the Uzans’ other operations,” Judge Rakoff said.
“The Uzans are business imperialists of the worst kind in that they will go to any lengths, including fraud and racketeering, to preserve their business empire.”
Although Samuel was “handicapped” by the fact that the Uzans would not provide detailed accounting records, Judge Rakoff said he is satisfied that the accountant’s report “laid out a substantial case for giving a degree of precision to the massive diversions that occurred.”
Acknowledging that his question about how in the world two multinational corporations became suckers to the Telsim owners has no bearing on the merits of their case against the Uzans, Judge Rakoff nevertheless sought an answer.
“You’re not the first person to have raised these questions. Since Motorola and Nokia are quite vicious competitors, the Uzans didn’t want them to know about each other,” said Howard Stahl, another Washington, D.C., lawyer representing Motorola.
Motorola did not know about Nokia’s problems with Telsim until mid-2001, at which time the Uzans regained majority control of the carrier by substantially diluting the value of Telsim shares that served as collateral for Motorola’s US$1.9 billion loan and Nokia’s US$800,000 loan, he said. Although each of the publicly traded equipment vendors operates under financial disclosure requirements that make such information public, “sales may have been disclosed, but I don’t believe the actual financing was disclosed,” Stahl said.
“Another string in your bow, which has always been striking to the court, is the now somewhat infamous step the defendants took to water down the stock use as collateral,” Judge Rakoff said.
“Given the history of the defendants, it might be a reasonable inference that they would never give up a big chunk of their stock or business enterprise to repay these loans. If that’s the case, pledging even a small amount of stock as collateral is fraudulent at inducement (at the outset).”
Before entering into its loan agreement, Motorola also considered several other factors, Davidson said. The vendor had never had a bad experience lending money to a second carrier, as Telsim was to become, in a developed market. The Turkish government conducted its own due diligence investigation before granting Telsim a mobile operator’s license. Merrill Lynch and Chase Manhattan Bank also provided optimistic opinions about the strength of the market, he said.
The Uzans blamed their repayment problems on the economic downturn that began in Turkey in 2001, but Samuel testified that the Telsim owners reneged on their repayment obligations well before this occurred. GW
