Bloomberg News

SEC Says Deutsche Telekom Violated Corrupt Practices Act

January 04, 2012

(Updates with lawsuit details in the seventh paragraph.)

Dec. 29 (Bloomberg) -- The U.S. Securities and Exchange Commission accused Deutsche Telekom AG, Europe’s biggest phone company, of violating the Foreign Corrupt Practices Act.

The SEC sued the Bonn-based company and its Budapest-based Magyar Telekom unit in federal court in Manhattan today. The court filing doesn’t indicate whether a settlement has been reached. John Nester, an SEC spokesman, declined to comment beyond the filing. Elpida Trizi, a Deutsche Telekom spokeswoman, declined to immediately comment on the lawsuit.

In a separate suit today, the agency accused three former Magyar Telekom officials of violating the FCPA. The defendants are former Chief Executive Officer Elek Straub, former Director of Central Strategic Organization Andras Balogh and former Director of Business Development and Acquisitions in the Central Strategic Organization Tamas Morvai.

All three are Hungarian citizens believed to be residing in that country, according to the complaint.

Magyar Telekom, Hungary’s former phone monopoly, in June said it set aside 11.7 billion forint ($48.7 million) as it negotiates a settlement with the SEC over Foreign Corrupt Practices Act violations.

New Competitor

In January Bonn prosecutors said an investigation turned up no evidence of wrongdoing against Deutsche Telekom Chief Executive Officer Rene Obermann related to the bribery allegations in Hungary and the Republic of Macedonia.

According to the complaints filed today, Straub, Balogh and Morvai in 2005 and 2006 executed a plan to bribe government officials in Macedonia to delay or prevent a new competitor from operating in that country and to obtain regulatory benefits, according to the complaint. Magyar Telekom paid $4.88 million euros ($6.3 million) during that period to an intermediary under the guise of consulting and marketing contracts, according to the complaints.

“The former executives also offered or promised Macedonian political party officials a valuable business opportunity in return for the party’s support of Magyar Telekom’s desired benefits,” the SEC wrote.

In 2005, Straub, Balogh and Morvai conducted a second scheme in which they authorized Magyar Telekom to make 7.35 million euros in corrupt payments to Montenegrin officials to facilitate the company’s acquisition of Telekom Crne Gore AD in Belgrade, Serbia, according to the SEC.

Cash Payments

“At least two Montenegrin government officials involved in the TCG acquisition received cash payments made through the bogus contracts,” the SEC said.

Lawyers for the three former executives couldn’t immediately be reached for comment about the lawsuit.

AT&T Inc. ended its $39 billion bid to acquire Deutsche Telekom’s T-Mobile USA on Dec. 19.

The cases are U.S. Securities and Exchange Commission v. Magyar Telekom Plc, 11-cv-9646, and U.S. Securities and Exchange Commission v. Straub, 11-cv-9645, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Cornelius Rahn in Frankfurt, Karin Matussek in Berlin and Edith Balazs in Budapest. Editors: Mary Romano, Stephen Farr

To contact the reporter on this story: Thom Weidlich in Manhattan federal court at tweidlich@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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