23/01/2011
NEWS STORY
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Formula One has driven through many legal scandals in the past 10 years. Some were more significant than others. However, none involved the imprisonment of one of the parties. That all changed at the beginning of this month with the arrest in Germany of Gerhard Gribkowsky, the former chairman of SLEC, the company which, until 2006, ultimately owned the commercial rights to F1. Not that the man on the street in the UK would know much about this though because media coverage in the UK, has been scant to say the least. That's not the case abroad.
To understand the background to this we need a quick history lesson from Pitpass' business editor Chris Sylt.
Gribkowsky was the chief risk officer of Munich-based bank BayernLB which, along with Lehman Brothers and JP Morgan, lent $1.6bn ($1,570.2m to be precise) (£981.2m) to the German media company Kirch in 2001. The money was used by Kirch to buy a 63.9% stake in SLEC from EM.TV, another German media firm. EM.TV retained an 11.1% stake in SLEC with the remaining 25% in the hands of Bambino Holdings, the Jersey-based company ultimately owned by F1 boss Bernie Ecclestone's family trust.
In 2002 Kirch got into financial difficulties and it became clear that it would not be able to repay the loan to the three banks. As security for the loan they had given Kirch, the banks took over its stake in SLEC, followed by EM.TV's shares, to give them a total of 75%. This was divided according to the amount of money the three banks had lent Kirch so Bayern held 47.2% as it provided $987.5m (£617m) of the loan. Lehman lent $300m (£187.4m) which gave it a 14.3% stake in SLEC and JP Morgan ended up with 13.5% as a result of it giving a $282.7m (£176.659m) loan.
The banks did not take over the SLEC stake out of love for F1, they did it with the sole aim of selling it on and recouping the money they had lent to Kirch. Gribkowsky was the representative of the single biggest SLEC shareholder and he became chairman of its board.
Gribkowsky's first task was getting control of the SLEC-owned companies which actually run F1. Although the banks held a majority stake they found that their directors didn't occupy the majority of board positions on companies including Formula One Holdings (FOH) and Formula One Administration (FOA) which directly owns F1's commercial rights. The banks claimed that control of the boards was in the hands of directors representing Bambino. Getting control was crucial for the banks because they could not get the highest price for their stakes without it.
First, Speed Investments, the company which held the banks' 75% stake in SLEC, sued Bambino to get control of FOH. Speed won and then it launched further legal proceedings against Bambino and Ecclestone personally to get control of FOA after one share granting 50% of the company's voting rights was signed into his name.
This led to the resignations of key people in SLEC's subsidiaries but the details of this could be a story for another day. In the end Gribkowsky did not need to go to court with Ecclestone and Bambino over control of FOA as on 25 March 2005 Bayern released a statement saying that "Mr Ecclestone and Bambino Holdings have demonstrated prudence in backing down on all of the points under legal dispute."
It was an unusual example of Ecclestone caving in and it gave the banks the control they needed to get the highest price for their SLEC shares. The court cases alone had taken over a year to play out and this alone indicates the great lengths Gribkowsky went to in order to increase the value of Bayern's stake. Therefore, it would be hard to believe that Gribkowsky undervalued the stake when it was eventually sold but this is exactly what he has been arrested for.
On 25 November 2005 F1's current majority owner, the finance firm CVC, announced it would acquire Bayern's stake in SLEC and Gribkowsky became a board member of Delta Topco, presumably to give continuity to the business. As Bayern's representative, Gribkowsky was responsible for getting the bank the highest price for its stake in SLEC but prosecutors in Munich claim that he did not do this.
"The stake had been sold without being properly evaluated," says Barbara Stockinger, spokeswoman for the prosecutors, adding that "the suspect in turn received $50m in payments disguised via two consultancy agreements." First Bridge Holding limited in Mauritius provided $21.2m with $27.5m coming from Lewington Invest limited in the British Virgin Islands. The first payment arrived in 2006 with the next the following year and both were made to GG Consulting, an Austrian business which, according to German magazine Spiegel, Gribkowsky set up on 25 November 2005 - the same day that CVC bought Bayern's SLEC stake.
Stockinger says that a probe reviewing the sale of Bayern's SLEC stake led to Gribkowsky's arrest on 5 January on charges of corruption, tax fraud and breach of trust toward Bayern. In a nutshell, Gribkowsky has been accused of deliberately undervaluing Bayern's SLEC stake in return for receiving a $50m bribe. But who could it have come from?
It is just as illegal to give a bribe as it is to receive one yet, bizarrely, nearly three weeks after Gribkowsky's arrest, nobody else has been arrested. This raises important questions.
In order for the Munich prosecutors to have charged Gribkowsky with receiving a corrupt payment in return for undervaluing Bayern's SLEC stake they must have evidence of this. The prosecutors could not have charged Gribkowsky with receiving a bribe purely on the basis of receiving the $50m (£31.2m). If they do not know where it came from then they could not prove that it is not a legitimate payment for work. But if the prosecutors know who paid the $50m bribe then why hasn't that person been arrested yet?
It does not seem at all usual for prosecutors to announce that a bribe has been paid without arresting the person who paid it. The reason for this is simple - the payer of the bribe could destroy important evidence or even flee the country once it was announced that the person who received their money had been arrested. Gribkowsky is a German citizen so it was easy and crucial for him to be arrested. However, if the person who paid the bribe is not based in Germany then the German prosecutors would have had to supply their evidence to the authorities in the country where he or she is based. It could take them some time to analyse this let alone make an arrest based on it.
But who could have paid the bribe for undervaluing Bayern's SLEC stake? As Ecclestone was not buying SLEC he had nothing to gain from Bayern's stake being undervalued so this rules him out. On Friday (January 21) the Formula One Group, which comprises every company connected to the running of F1, released a statement confirming this.
The release states that, except for Gribkowsky's $50,000 salary as a Delta Topco board member, the "Formula One Group and Mr. Ecclestone are neither involved in any other payments to Dr. Gribkowsky or anyone close to him, nor did they know about such payments." Similarly, CVC has said that "it has no knowledge of, nor any involvement in, any payment to Mr Gribkowsky or anyone connected with him in relation to CVC's acquisition of Formula One."
A bigger question is whether the shares were even undervalued. This is something which also could be covered in a separate piece but we can get an indication by bearing in mind that, in addition to Gribkowsky, there were numerous other bankers who represented Bayern on the board of SLEC's subsidiaries. So if Gribkowsky did undervalue SLEC in return for a bribe (and there is no suggestion whatsoever that this is what happened) then why did the other Bayern directors on the boards of SLEC's subsidiaries not raise the alarm over this? They were all experienced professionals so it seems to be stretching the imagination to believe that they wouldn't have acted in this way if Gribkowsky really did undervalue Bayern's SLEC stake.
Sylt is utterly convinced that the shares were not undervalued and so clearly Gribkowsky could not have received a bribe for this. So if he did indeed receive a bribe then it would have to have been for something else that he did before the first payment was made in 2006. And it would have to have been something pretty significant since $50m is a lot of money… even the rarefied world of Formula One. Foreign media seem to be less convinced.
According to a foreign media report GREP, a subsidiary of Gribkowsky's GG Consulting business, wrote a letter on 14 December 2007 marked strictly private and confidential and this was sent to the source of the $27.5m payment from Lewington Invest. The report claims that the letter says part of the agreed fee was not transferred within the agreed period and $2,229,139 was still missing. In the letter GREP also allegedly complained that since the middle of 2006 the total payment from Lewington had lost a lot of value due to the falling dollar. The report states that the money was duly paid following the letter.
Why on earth would Gribkowsky have written a letter exposing this link after the payer of the money went to the trouble of transferring the funds through tax havens which could not be traced back to their source? If the money was not paid in full then Gribkowsky would have had reason to get in touch with the source of the payment but obviously a phone call would leave less of a paper trail.
Perhaps Gribkowsky deliberately sent the letter so that it would be discovered if the German authorities ever investigated the payment. In F1 anything that can happen often seems to happen but the entire idea of this kind of letter being sent sounds so far fetched that it is impossible to be sure in the slightest that the media report about it is accurate.
Gribkowsky is currently residing in Munich's notorious Stadelheim prison, where Hitler was once incarcerated, and he clearly cannot stay there indefinitely without trial. So one thing that is sure is that when the trial takes place we will all know the truth about the real source of the payment to him.
It is only a matter of time.