DaimlerChrysler accused of 'plain old-fashioned' fraud

Click to follow
The Independent Online

DaimlerChrysler was accused in court yesterday of deliberately mischaracterising the 1998 deal that brought into being as a "merger of equals" when in reality it amounted to a veiled takeover of the American car maker by its German suitors.

The trial, which opened yesterday in Wilmington, Delaware, is the climax of a three-year struggle between DaimlerChrysler and Kirk Kerkorian, the investor who held 13.7 per cent in Chrysler before the $36bn (£21bn) deal was completed five years ago.

Addressing the judge Mr Kerkorian accused the company of engaging in "plain, old-fashioned fraud" in claiming that Daimler and Chrysler were being fused as equal partners to create the automotive giant. He is suing the company and its chief executive, Jürgen Schrempp, for $1.2bn.

Mr Schrempp, who is not expected to take the stand until next week, is also accused by Mr Kerkorian of violating securities laws in the United States with his presentation at the time of the merger details. Mr Schrempp and DaimlerChrysler have denied any wrongdoing, however.

"Because of the lies, defendants were able to take over Chrysler, drive out the senior leaders at Chrysler and replace them with Daimler executives from Germany," Terry Christensen, who represents Mr Kerkorian's Tracinda Corp, said during opening arguments.

The extraordinary trial is expected to last until 17 December. The judge in the case, Joseph Farnan, is unlikely to reach a decision until next March or April.

Mr Kerkorian, who is famously reclusive, filed the suit last year after Mr Schrempp appeared to admit in a newspaper interview that from the outset his intention had been to turn Chrysler merely into a division of Daimler's worldwide interests. The defence faces serious challenges during the trial, not least because it reached an out-of-court settlement with another group of investors with a similar complaint just last year. The $300m settlement was the largest such deal ever struck between US investors and a public corporation.

However, lawyers for Chrysler are expected to argue that Mr Kerkorian had a representative on the Chrysler board at the time and was fully aware of the details of the proposed transaction.

Even up to the start of proceedings yesterday, DaimlerChrysler continued to hint that a similar settlement might be possible in this case.

"If someone has something they want to discuss with us we would be foolish to say we will not talk to anyone about anything and we would not say that, but at the moment we are fully engaged in preparing to go to trial," DaimlerChrysler's attorney Mike Schell said last week

Judge Farnan rejected DaimlerChrysler's final attempts to have the case dismissed, saying evidence suggests the deal was a covert takeover from the outset.

"Tracinda's evidence demonstrates that the defendants mounted a full-scale communications campaign aimed at concealing their intent to take control of Chrysler and pressing the 'merger of equals' concept," Judge Farnan said.