(Updates with defense statements starting in ninth paragraph.)
Oct. 24 (Bloomberg) -- The trial of a former Bayerische Landesbank manager over what prosecutors say were $44 million in bribes to facilitate the sale of the bank’s stake in Formula One racing may shed light on business practices at the world’s most- watched racing series.
Gerhard Gribkowsky, 53, was charged in July with accepting bribes, breach of trust and tax evasion. Prosecutors claim he received the bribes as part of the 2005 sale of BayernLB’s 47 percent stake in Formula One to CVC Capital Partners Ltd.
The trial began today in Munich and is scheduled to feature testimony from Formula One Chief Executive Officer Bernie Ecclestone, who is also being investigated, and CVC managing partner Donald Mackenzie. The criminal trial is one of several lawsuits stemming from the transaction in Germany and England.
“It’s going to be fascinating,” said Tom Cannon, a professor at England’s Liverpool University who has researched the way Formula One and other sports are financed. “Ecclestone has found ways of resolving conflicts before they got to court; this time, he hasn’t managed to.”
BayernLB acquired the Formula One stake after the 2002 bankruptcy of Leo Kirch’s media group. Gribkowsky, BayernLB’s chief risk officer at the time, clashed with the Formula One chief and sued him in a London court over corporate-governance rules Ecclestone changed to limit the lender’s influence.
$50 Million Demand
Ecclestone wanted to push BayernLB out and saw a chance when CVC showed interest, prosecutors said in the indictment. Gribkowsky demanded $50 million from Ecclestone as a reward for consenting to the deal and threatened to disclose possible tax violations by a trust run by Ecclestone’s wife at the time, prosecutors said.
Both men agreed on a plan that funneled $44 million to Gribkowsky through sham contracts and off-shore companies, according to prosecutors. Gribkowsky then single-handedly negotiated the purchase without seeking other bids, prosecutors said. BayernLB’s share was sold for 840 million euros ($1.16 billion).
Prosecutors conducted the probe “one-sidedly” and “tendentiously,” Gribkowsky’s lawyer, Rainer Bruessow, said in a statement to the court on the charges, because they were fixed on finding an explanation for the payments that would make them look criminal.
The investigators didn’t look at exculpatory evidence and didn’t question important witnesses, including former Formula One president Max Mosley and Flavio Briatore, the former manager of Benetton’s and Renault’s racing teams. The men would have testified that huge payments were the norm in the Formula One world, Bruessow said.
“There was a witch hunt waged against my client in part of the media right from the start of the probe,” Bruessow said. That was supported “by the indictment being leaked to the press very early in the case.” Gribkowsky declined to comment directly on the charges when asked by the court today.
CVC had no knowledge of any payment to Gribkowsky, the company said in an e-mailed statement last week.
Ecclestone, who has denied any wrongdoing, is scheduled to testify Nov. 9 and 10. His attorney Sven Thomas didn’t reply to an e-mail seeking comment.
Ecclestone didn’t want to pick up the tab for the bribes, so Gribkowsky set up another scam to funnel money from BayernLB to the Formula One chief, according to the indictment. The bank manager signed a sham contract under which BayernLB had to pay Ecclestone a kickback of $41.4 million and another $25 million to the Bambino trust held by his then wife Slavica Ecclestone, prosecutors claimed.
She was never interviewed by prosecutors, Bruessow said. The Bambino trust earlier this month told the court the $25 million transactions -- payments to four racing teams -- went to compensate valid claims and were legitimate, Bruessow said.
Gribkowsky handled the sale swiftly and there was no better offer around as a BayernLB-commissioned expert review showed, Bruessow said. There was a risk at the time that the stake’s value would fall if automakers acted on their threat to start their own racing series, the lawyer said.
“My client saved taxpayers hundreds of millions and made BayernLB walk out of this as a winner,” Bruessow said. “He defused a bomb by selling the stake.”
Gribkowsky’s lawyers also asked the court to review whether they should consider themselves unfit to try the case as all three professional judges on the bench are paid by the state of Bavaria, which owns BayernLB. The court rejected the request.
The trial is one of several legal fights facing BayernLB, which received a 10 billion-euro government bailout following losses on U.S. subprime mortgages. In June, Munich prosecutors charged the lender’s former management with breach of trust over the 2007 purchase of Hypo Alpe-Adria Bank International AG.
“A quick solution of the Gribkowsky case is of particular importance to BayernLB to prevent it from leading a permanent multifront war with its owners, clients, bank supervisors and EU authorities,” said Bernd Rudolph, an finance professor at Munich’s Ludwig-Maximilians-University.
BayernLB had its internal audit department check the bank’s processes during the Formula One sale and also asked an external auditor to verify the sales price, BayernLB spokesman Matthias Luecke said. Neither review found any wrongdoing, he said.
A day before he was arrested in January, Gribkowsky told prosecutors he was aware of the fact that he didn’t “really have a right” to the money he received and that he was “just lucky,” according to a memo by Munich prosecutors obtained by Bloomberg News.
His plan was to use the money to help children with cancer, the document cites him as saying. Ecclestone initially offered him even $80 million, Gribkowsky said. Prosecutor told him his claims were “implausible,” according to the memo.
Gribkowsky has been in custody since Jan. 5. The court has scheduled 26 days of trial and about 40 witnesses have been called to testify.
--With assistance from Alex Duff in Madrid. Editors: Anthony Aarons, Chris Elser
To contact the reporter on this story: Karin Matussek in Munich via email@example.com; Oliver Suess in Munich at firstname.lastname@example.org
To contact the editor responsible for this story: Anthony Aarons at aaarons@Bloomberg.net.