SEPTEMBER 21, 2006
The plot thickens
The mysterious Formula 1 payment that ended up funding the FIA Foundation and secured the commercial rights to F1 for 100 years continues to provide plenty of interest in F1 circles. The money needed to complete the transaction was advanced to SLEC - the Formula One group's holding company at the time - by Formel Eins Beteiligungs (FEB), a German subsidiary of the Kirch Group, which had been set up in March 2001 when EM.TV sold Speed Investments (which owned 50% of SLEC) to Kirch. Funding for this operation came from the Bayerische Landesback which paid $987.5m, Lehman Brothers, which paid $300m and JP Morgan, which owned Kirch debts valued at $282.7m. To secure the deal, EM.TV guaranteed FEB's repayments to the banks with its remaining 22.3% shareholding in Speed. The deal also allowed Speed to increase its shareholding in SLEC to 75%. Thus the Formula One empire came under the control of FEB, although the Ecclestone Family's Bambino Trust retained 25% of SLEC.
FEB needed to come up with money for the FIA almost immediately and, according to the Munich public prosecution, borrowed $140m from KirchMedia GmbH and took out a loan of $120m from the Zurich branch of Credit Suisse. This added to $60m which had been a downpayment on the FIA deal in 2000 made up the money that ended up in the hands of the FIA Foundation.
The Kirch empire began to unravel in the course of the next 12 months and it was forced to file for bankruptcy protection in April 2002, at which point its accounts were frozen. FEB made a separate insolvency request in June the same year. However, six months later (in December 2002) a foundation in Liechtenstein - the Faller Stiftung - paid $121.9m from a secret numbered account to Credit Suisse to settle the outstanding FEB loan. The payment from Faller Stiftung led to a German investigation and Swiss police even raided Credit Suisse offices in Zurich in February 2003 although the public prosecution service in Munich later ruled that no criminal activities had taken place. It also said that it was impossible to know who owned Faller Stiftung.
At around the same time Liechtenstein appeared on an international list of countries which did not have sufficiently strong anti-money-laundering legislation and as a result of that the laws were changed. At some point Faller transferred the FEB debt to MH Movie Consulting, which ultimately sold it on to Kamoz-Finanz, the company that is now claiming the money from the Formula One group.
It is not easy to know in this complex web of financing who should pay the debt that Kamoz-Finanz acquired. It may be that there are questions about the guarantee given to the banks by EM.TV back in March 2001. There has certainly been legal action related to this. EM.TV, the management of which had been taken over in September 2001 by Werner Klatten, went to court with the three banks in Jersey in December 2002 to prevent them taking over its share of SLEC. It won, but in February 2003 sold this shareholding to the Bayerische Landesbank for a reported $9.1m. At the same time EM.TV challenged the legality of the guarantee given to the banks in a legal action with them in Jersey and lost.
It may well be that the defence in the current case will argue that Kamoz-Finanz should be claiming the money from EM.TV rather than from SLEC.
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