Telekom trial
January 25, 2012
In what's been called the biggest investors trial in German history, a high court in Frankfurt on Wednesday resumed hearings on a case involving 17,000 Deutsche Telekom shareholders, who claim to have suffered a collective loss of 100 million euros ($129.7 million).
During Deutsche Telekom's initial public offering (IPO) in 2000, hundreds of thousands of Germans bought shares of the company at a price of 66.50 euros ($86.30) per share. They saw their investment evaporate when, in February 2001, Deutsche Telekom was forced to announce a drastic write-down of its real estate portfolio value, causing share prices to plunge.
On Tuesday Deutsche Telekom stocks traded at between 8 and 9 euros per share at the Frankfurt Stock Exchange.
"It's clear that investors at the time expected too much of T-shares, or 'the people's share' as it was commonly called," Dusseldorf-based lawyer Friedrich Isenbart told Deutsche Welle.
"An investment in shares always poses risks," he said, adding that in the information accompanying the IPO Deutsche Telekom did not try to conceal the possibility that "value fluctuations" could occur.
Crucial information concealed
In the trial, shareholders seek damages and interest to the tune of 80 million euros, claiming the company had inflated the value of its real estate holdings and misled potential shareholders as it listed a third slice of its capital in 2000.
One of the issues to be sorted out by the court is the acquisition of US company Voicestream, which the plaintiffs claim should have been mentioned in Deutsche Telekom's IPO prospectus.
In 2001, Deutsche Telekom paid $38 billion in a cash-and-stocks takeover of the US mobile phone company - a deal reportedly already sealed in 2000.
Isenbart said that the company was not solely responsible for providing such information - and thus liable for damage claims - but the author of the prospectus was too.
"This means that managers on the executive as well as the advisory board are in the dock now, being investigated for the extent of their own commercial interest in listing Deutsche Telekom stocks," he said.
Lex Telekom
Until 2005, the German legal system didn't provide for US-style class action lawsuits in which a single plaintiff sues on behalf of others.
Faced with the prospect of thousands of individual claims, however, German lawmakers created a similar law. The legislation, which has since been dubbed "Lex Telekom," is being applied for the first time in this case.
Out-of-court settlement
Deutsche Telekom already paid $120 million to US shareholders in a settlement reached outside of the courts. If the court finds substantial evidence supporting the charges, a similar result is likely in the German case, according to Mark Wilhelm, a lawyer also based in Dusseldorf.
"This [settlement] would at least create some satisfaction among a large number of plaintiffs," he told Deutsche Welle.
Should the lawsuit fail, Wilhelm said that he expected the shareholders to appeal to a higher court. He also noted that the roughly 900 law firms representing the 17,000 plaintiffs would just be "waiting to start new proceedings" against Deutsche Telekom, meaning that the historic trial "won't be over any time soon."
Author: Monika Lohmüller, Uwe Hessler
Editor: Nancy Isenson