F1 boss Bernie Ecclestone indicted in German bribery case

News is breaking that F1 boss Bernie Ecclestone has been indicted by German lawmakers on alleged bribery charges.

The racing magnate has been under investigation for allegedly paying $44m (£29m) to a German banker, following the sale of a stake in F1 back in 2006.

Ecclestone has admitted paying Gerhard Gribkowsky of Bayern Landesbank but insists that the money was not intended as a bribe. Gribkowsky has already been sentenced to an eight-and-a-half year jail term.

“I have just spoken to my lawyers and they have received an indictment. It’s being translated into English.” Ecclestone told the Financial Times on Wednesday.

“We are defending it properly. It will be an interesting case. It’s a pity it’s happened.”

Ecclestone, however, seemed relatively relaxed about the affair, saying that the case going forward was “inevitable” and that he had been preparing to fight the allegations.

The backstory is complicated, but has been explained in detail previously by a LondonlovesBusiness.com exclusive with the F1 boss:  

“In 2000 and 2001 [German firm] Constantin, then known as EM.TV, bought a 75% stake in F1 but came close to collapse during the recession over the following years. It was saved by another German media company, Kirch, which bought 58.3% of EM.TV’s stake in F1 using a $1.6bn loan from state-owned bank BayernLB, JP Morgan and Lehman Brothers.

“Kirch itself went bankrupt in 2002 and the three banks took over its F1 shares which their loan was secured on.

“EM.TV then agreed to sell to the banks the 16.7% stake it had been left with. The stake had a balance sheet value of €204m but, according to EM.TV company documents it was sold for just €8.5m on condition that when the banks sold the combined 75% the media firm would receive ‘a partial interest in eventual surplus proceeds exceeding the loan amount.’

“Writing down its F1 stake by €195.8m led to EM.TV making a €310m net loss in 2002 - all in the hope that a further buyer would pay a huge amount for the rights later on. The gamble did not pay off.

“Although CVC was the highest bidder, its price left the banks with $1.2bn: a full $400m less than they had loaned Kirch. So no payment was owing to EM.TV.

“The banks were out of pocket, but they weren’t too bitter. The amount the banks got was still more than they expected since they had gradually reduced their internal valuation (known as book value) of their F1 stake due to uncertainty over the sport’s future.

“In 2004, Werner Schmidt, who was BayernLB’s chairman at the time, said that the value of the stake was ‘far lower’ than €650m and Ecclestone adds: ‘The price I got the banks for their shares was double the value they were in their books at.’

“BayernLB announced a valuation yield of €328m in its 2006 results and stated that the sale of the F1 shares ‘decisively contributed to the positive result.’ In short, the bank was paid more than the book value for the shares. EM.TV was not so fortunate.

“The banks had got back less than they had loaned Kirch which meant EM.TV’s gamble had gone sour. And in January [2011] the deal hit the headlines.

“Gerhard Gribkowsky, the BayernLB risk manager who advised the bank on the sale, was arrested on suspicion of receiving a $44m bribe for undervaluing the stake. In July prosecutors formally accused Ecclestone of paying the bribe.

“In response Ecclestone admitted making the payment but said he did so because Gribkowsky had threatened that he would otherwise report unfounded allegations about his relationship with his family trust to the Inland Revenue.

“The prosecutors’ claims led to EM.TV/Constantin filing the lawsuit against Ecclestone as well as his family trust, his lawyer Stephen Mullens and Gribkowsky. Constantin claims they are to blame for selling F1 too cheaply and so it is due over $100m.

“Constantin’s agreement to receive proceeds from the sale was with the banks but they are not named on the lawsuit and Ecclestone tells LondonlovesBusiness.com it is nothing to do with him. ‘I didn’t know at the time that in the deal if the shares were sold for more than they paid for them, EM.TV would get a percentage. What percentage I have no idea. I have never heard of the contract, never seen the contract and know nothing about the contract.’”

 

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