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Ecclestone scores victory in $650m Bluewaters case

NEWS STORY
22/01/2014

Bernie Ecclestone has scored victory in a lawsuit which was brought against him by investment fund Bluewaters according to a report by Christian Sylt in American motoring magazine Autoweek.

It is the first verdict in three cases which are connected to an alleged $44m bribe paid by Ecclestone and his Bambino family trust to former banker Gerhard Gribkowsky. Bluewaters filed its lawsuit in the New York Supreme Court and yesterday Eileen Bransten, Justice of the Supreme Court, ruled that it could not go ahead as it was not even suing in the right place. Although it won't proceed to a trial, the court ruling contained a potentially crucial piece of news which could affect the outcome of the other cases against Ecclestone.

To recap, Bluewaters said that it was the highest bidder when F1's current owner, the private equity firm CVC, bought the sport in 2006 for $2bn. Bluewaters was negotiating with a consortium of three investment banks, BayernLB, JP Morgan and Lehman Brothers, which together owned 75% of F1. Although Bluewaters only offered them $1bn, which is less than CVC paid, it claimed in court that its offer was submitted with a cover letter saying that it was prepared to pay 10% more than any other buyer.

The offer and letter were sent to Gribkowsky as he was chief risk officer at BayernLB which was F1's single biggest shareholder. Bluewaters claims that Gribkowsky rejected its offer because he had been paid $44m as an incentive to sell to CVC which had agreed to retain Ecclestone as the boss of F1. In contrast, Bluewaters refused to guarantee that it would keep Ecclestone and it believes that he was therefore opposed to its offer.

In November 2012 Bluewaters sued Ecclestone, Bambino, CVC and Gribkowsky. It demanded $650m in damages because it claimed that CVC's profits from F1 "rightfully belong to Bluewaters and its financial backers." When Pitpass revealed that the Bluewaters lawsuit had been filed we said that "this is one of many points in the lawsuit which seems to be completely illogical." Simply because Bluewaters allegedly offered to outbid CVC that does not mean to say that it would have made anything like the same level of return that CVC has made.

An even more illogical point was the location of the lawsuit in New York and this is what ultimately led to it being dismissed. On Tuesday Justice Bransten ruled against Bluewaters because "the 'critical events' underlying the claims in this lawsuit took place in Germany, England and elsewhere in Europe." Although Bluewaters itself is now based in New York, at the time of its offer for F1 it was located in Jersey which is also the home of F1's parent company Delta Topco.

Ecclestone admits paying Gribkowsky but denies that it was a bribe. He says Gribkowsky threatened to make false allegations about his tax affairs if the money was not paid. It was paid from Ecclestone's bank accounts in Switzerland through a financial advisor who is based in the country.

Justice Bransten said that "this action is not about a lost business venture in New York, but rather on allegations that an English citizen bribed a German citizen to compel a German bank to sell its interest in a Jersey company to an English company rather than another Jersey company."

As a catch-all argument, Bluewaters claimed that the lawsuit should be heard in New York because the alleged bribe was paid in dollars. However, Justice Bransten said that "Bluewaters' jurisdictional theory would vest a New York court with jurisdiction over any party anywhere in the world who does a dollar-denominated transaction even though the transaction has no connection to New York."

However the most crucial revelation came when Justice Bransten talked about the cover letter to the Bluewaters' bid which allegedly outlined that it was prepared to pay 10% more than any other bidder. "No party has submitted a copy of this alleged cover letter," said Justice Bransten. Without the letter it is obviously impossible to prove that Bluewaters did indeed offer 10% more than any other bidder.

This is a potentially crucial development as Bluewaters is the only bidder which has come forward to claim that it offered more than CVC. If its claim can not be validated then that leaves CVC as the highest bidder which could play into Ecclestone's hands.

German media rights firm Constantin Medien sued him in London claiming that other bidders would have paid more than CVC. Bluewaters was repeatedly mentioned in this context during the trial but the news in the ruling raises the question of whether it did indeed offer more than any other bidder.

BayernLB is understood to be considering suing Ecclestone for undervaluing its F1 stake through the sale to CVC but if there is no proof of any higher bidders this too could face a serious obstacle.

In April Ecclestone is due to be put on trial in Germany for paying the alleged bribe which is a criminal matter and not directly connected to the sale price. However, to prove that the payment of $44m was a bribe the prosecutors need to demonstrate that Gribkowsky breached his duties by selling to CVC in return. If he rejected a higher bidder, such as Bluewaters, that could help the prosecutors' case but if they can't prove that it offered more then it is back to square one. Round one goes to Ecclestone. Next up is the Constantin verdict.

Business news from @formulamoney

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1. Posted by ape, 22/01/2014 12:38

"good explanation of the case(s)"

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