Subject: [NEXTEL-1] Turkey's Uzans Bilked Billions Out of Motorola, Nokia

From: Marcelrf <[email-masked]>
Date: Sun, 22 Feb 2004 16:11:15 -0500

Turkey's Uzans Bilked Billions Out of Motorola, Nokia
(Update4)

Feb. 20 (Bloomberg) -- There's no doubt that some
members of Turkey's Uzan family intended to steal
$2.7 billion from Nokia Oyj and Motorola Inc., the
world's No. 1 and 2 makers of cell phones, says U.S.
District Judge Jed Rakoff.

``The degree to which the defendants have misled
the court is, frankly, unparalleled in this court's
experience,'' the judge wrote last July, when he
ordered the Uzans to pay $4.3 billion to Motorola
and $1.7 billion to Nokia.

Turkish prosecutors are seeking members of the
billionaire clan -- whose empire of about 260
companies includes Turkey's second-largest
cellular-phone service company, banks and cement
and construction concerns as well as five television
channels, 12 radio stations and two national
newspapers.

The prosecutors say the Uzans are also guilty of embezzlement and fraud
in the $6 billion collapse last year of a bank they controlled: Turkiye
Imar Bankasi TAS.

On Feb. 14, the Turkish government took over management of 219 Uzan
companies, including phone and media holdings, to help repay depositors
and creditors and prevent family members from siphoning off cash.
Ed Hughes, Motorola's corporate vice president of finance, is still
angry as he recounts his own dealings with the Uzans. ``I was shocked,''
Hughes says. ``Absolutely furious. Those are the kinds of things you
just don't ever want your name associated with.''

On the Run

Kemal Uzan, 69, and his son Hakan, 36, couldn't be reached to respond to
the accusations; they're on the run from Turkish arrest warrants. Kemal
disappeared last August, when Turkish police went to arrest him at his
22-room, 94-year-old Istanbul mansion overlooking the Bosporus.

Hakan, too, has vanished from his nearby three-story modern villa, which
the locals have dubbed ``the castle'' because of 10- meter-high
(32.8-foot-high) walls that bristle with monitoring devices. On a recent
day, children played soccer on the landing pad for Hakan's helicopter
beside the house.

In an interview on Aug. 12, 2003, before he went into hiding, Hakan Uzan
disputed Rakoff's ruling -- which had come in response to a lawsuit by
the two mobile-phone makers -- that family members had diverted
Motorola's money into private bank accounts and Manhattan real estate.

Some $1.8 billion that their Telsim Mobil Telekomunikasyon Hizmetleri AS
had borrowed from Motorola went for buying equipment from the
phonemaker, Hakan Uzan said. The remaining $200 million went to the
Turkish government to buy a cellular license, he said.
Money Owed
Hakan Uzan, who earned a bachelor of science degree in civil engineering
from the University of Hartford in 1988, is missing the point, Motorola
and Rakoff say. Telsim still needs to pay back the loans. When the Uzans
moved Telsim revenue out of the Turkish phone company to buy apartments,
yachts and airplanes, they were diverting money from Schaumburg,
Illinois-based Motorola and Espoo, Finland-based Nokia, Rakoff's ruling
says.
The Uzans say the charges against them in Turkey that are related to
their bank's collapse are politically motivated. The family's
Istanbul-based Star newspaper said in late January that the Turkish
government is angry because one of the clan -- 44- year-old Cem -- heads
the Young Party, which opposes the government of Prime Minister Recep
Tayyip Erdogan's Justice and Development Party, an Islamic party elected
to power in November 2002.
Mansion Raided
Cem Uzan, who resigned from his roles in all family companies when he
entered politics, hasn't disappeared.  While he's a defendant in the
U.S. lawsuit, Turkish authorities aren't accusing him of wrongdoing.
Police raided Cem's Istanbul mansion yesterday and discovered a secret
chamber hidden under a swimming pool, Sabah and other Turkish newspapers
reported today. The police found 100 trillion liras ($75 million) worth
of pre-paid Telsim phone cards in the room, papers said.
Cem Uzan acknowledged that he had some phone cards in his home. ``It's
my company, I can keep its phone cards wherever I want,'' he said in a
press conference in Istanbul today. He denied that there was a secret
room, saying that the indoor swimming pool in his house was covered up
and used as a depot.
A court in Bursa, two hours east of Istanbul, issued an arrest for Cem
Uzan today because he failed to show up for a trial where he's accused
of insulting Erdogan. The warrant was later withdrawn after Cem
testified in court.  The politician said the warrant was part of
pressure aimed at making him give up politics because the ruling party
sees him as the biggest threat to its power.

``But I will not surrender,'' Uzan said.
In an interview with Star TV in late January, Cem said his father,
Kemal; his uncle Yavuz; and his brother Hakan fled because Turkish
prosecutors, acting under government orders, had issued arrest warrants
before hearing the Uzans' testimony.
``If you're treating me like a terrorist, then I'll be afraid,'' Cem
told Star TV, which isn't affiliated with Rupert Murdoch's television
networks of the same name.

Cem also said the $6 billion collapse of the Uzans' Imarbank is at most
a minor crime. ``Liabilities were hidden; that was wrong,'' he said.
``If there's a crime, that's a reporting crime. You might have run a red
light.''
$2 Billion in Defaults

Motorola and Nokia say the Uzan affair is far more serious. In October
2001, Motorola added $1.3 billion to its loan-loss reserves to help
cover $2 billion in financing that Telsim had defaulted on. It wrote off
$530 million more in June 2002, thereby contributing to a loss of $2.32
billion in the quarter ended in that month.

Motorola and Nokia are trying to track down the Uzan family's assets,
which Motorola estimates include $800 million in secret Swiss bank
accounts.

Motorola and Nokia aren't the only ones who've lost money in their
dealings with the Uzans. An emerging markets fund managed by Templeton
Asset Management Ltd.'s Mark Mobius lost $15 million after investing in
1989 in an electric power company, control of which was later acquired
by the Uzans.

Surprising shareholders such as Mobius, the Uzans put the utility's cash
into Imarbank accounts that didn't pay any interest -- effectively
making them free loans to the bank, according to Mobius's 1999 book
``Passport to Profits'' (Warner Books). The company, Cukurova Elektrik
AS, reported a loss of about $44 million for 1999, and its stock fell to
44 cents in October 1999 from a peak of $3.32 in January 1998.

Making an Example

Mobius compares the Turkish government's moves against the Uzans to
Russia's crackdown on AO Yukos Oil Co.'s Mikhail Khodorkovsky. Going
after the Uzans or Khodorkovsky can help deter others from corruption,
Mobius says. ``They probably both represent the largest amounts of money
of all and thus can be considered case studies or cases where an example
can be made,'' he says.

Though unethical businesspeople can be found in any country, Turkey is
susceptible to legal and financial misdeeds because of its outdated
laws, slow judicial system and judges' lack of familiarity with
financial markets, says Ilter Turan, a professor of political science at
Istanbul Bilgi University.

``This gives someone like the Uzans unlimited opportunities to do things
that would make life difficult for their partners,'' he says.

Judge Rakoff, in his ruling, said an unpredictable Turkish financial
environment acted as the catalyst for the fraud.
Diverting Money

``The Uzans -- building a diverse economic empire and constantly
confronted with the uncertainties and vicissitudes of the Turkish
economy -- saw plaintiffs' loans to Telsim as a great opportunity to
funnel vast sums into their control,'' he wrote.
From 1998 to 2002, Turkey was governed by multiparty coalitions that
bickered so much on economic and political decisions that the country
experienced two recessions, three governments and a 54 percent decline
in the value of the lira against the U.S. dollar in 2001.

Motorola is also using diplomatic channels to try to get its money back
by sending representatives to meet with the Turkish prime minister. ``We
have always done everything in our power to help them,'' Erdogan said of
Motorola during a visit to Washington in late January. ``We are
sensitive to any matter which may have negative repercussions on our
international relations.''

Kemal Uzan's mansion, built by French architect Alexandre Vallaury for a
general of the Ottoman army, is described by art historian Murat Belge
as one of the most beautiful homes along the Bosporus.
Helicopter Travel

While his father, Kemal, traveled by car or taxi, Cem, the politician,
attended his rallies prior to the November 2002 elections by helicopter.
Blue-eyed Cem, tieless and with his shirtsleeves rolled up, would touch
down in a meadow next to the town in which he was due to speak and then
drive to the rally site, shake hands with supporters and give an
eight-minute speech, which he read through transparent teleprompters
mounted atop a bus. That way he could do five rallies a day -- more than
any other politician.

On Jan. 15, two helicopters sat atop the Star television and newspaper
building in Ikitelli, on the outskirts of Istanbul. The brothers' yachts
include the 195-foot, $35 million motor vessel Frequency, which, when
built in 1998, was the largest all- aluminum yacht made in the U.S.
since World War II.

Daily Newspaper

Kemal Uzan, who came from a family of farmers in what was then Sarajevo,
Yugoslavia, got a degree in civil engineering at Istanbul Technical
University in 1949. In 1956, Uzan started construction company Yapi ve
Ticaret AS in Istanbul, building soccer stadiums, dams and other public
projects.

In 1964, he bought the Yeni Istanbul daily newspaper and began paying
big bonuses to hire Turkish journalism's big names, according to Yalcin
Bingol, who worked for the paper at the time. ``The Uzans are the
pioneers in Turkey of building politician- media ties and using it to
their business advantage,'' says Tayfun Talipoglu, a journalist who
worked for Uzan media in the 1990s.

Uzan brought his two sons into the business, giving them board
memberships in Rumeli Holding, the umbrella for his different
businesses: Kemal ran the energy, construction and cement businesses and
oversaw the expansion into finance. In 1984, Uzan bought Imarbank -- a
small bank that also lent to the government -- for $21 million from the
late Ayhan Sahenk, who ran three other banks in the 1990s.

Media Expansion

Eldest son Cem, who has a bachelor's degree in economics from Pepperdine
University in California, led the company's media expansion. In 1990,
sidestepping Turkish laws barring private television broadcasters, Cem
set up a channel in Germany, Star TV, that broadcast to Turkish homes
via satellite. His partner was Ahmet Ozal, now 48, son of then Prime
Minister Turgut Ozal.

A year later, when Ozal's party lost the elections, the friendship with
Ahmet Ozal soured, journalist Talipoglu says. Ahmet Ozal got pushed out
of management, he says, and Star TV started supporting the new governing
party, especially Economy Minister Tansu Ciller.

When Ciller became prime minister in 1994, the Uzans made up one of only
two groups that were allowed the leasing rights to provide cellular
phone service in Turkey. That was the start of Telsim.
Attacking Ciller

From shortly after its inception, Telsim did business with Motorola,
which provided equipment that was partly paid for with promissory notes
-- written commitments to pay another party a specific amount of money
by a specific date -- totaling $52.5 million, according to the
phonemakers' lawsuit against the Uzans in U.S. district court in New
York. Telsim made timely payments on those early loans, according to the
lawsuit.

In 1995, the Uzans had a falling out with Prime Minister Ciller after
some of their business deals fell through.  Star TV started attacking
Ciller in its daily news bulletins. Ciller's government handed control
of Telsim to the state phone company for about two years from 1995 to
1997.

The only other competitor, Turkcell Iletis im Hizmetleri AS, grew to 2.6
million subscribers by the end of 1998, while Telsim had 800,000.

Starting in 1997, when Ciller was no longer prime minister, Motorola and
Telsim began talks on Motorola's providing phone system equipment and
services in exchange for a foothold in the growing Turkish market,
according to the lawsuit.
$560 Million in Loans

On April 24, 1998, Motorola agreed to lend Telsim $360 million for the
purchase of cellular equipment from a Motorola affiliate. Motorola also
agreed to lend Telsim $200 million toward the purchase of the $500
million government license required of Turkish phone service operators
four years after they were first allowed to operate.

Such vendor financing is a common way for phone equipment makers to
break into developing markets or boost market share by securing
partnerships with local license holders. The equipment maker gets to
count toward its earnings the sales made with its own money while
recording the loans on its balance sheet, where they could turn into
charges against future earnings if they aren't repaid.

Some phone companies were too eager to use such financing in the late
1990s, says Mark Herskovitz, who manages the $1.2 billion Dreyfus
Premier Technology Growth Fund, including 1.75 million Motorola and
565,000 Nokia shares.
`Like a Sickness'

``It was like a sickness, like a mental issue where people were lending
money all over the place,'' says Herskovitz, who started buying his
Motorola shares after the company disclosed its losses in Turkey.

As collateral for the two loans, the Uzans put into an escrow account
Telsim shares that eventually amounted to 66 percent of the company's
capital as the Uzans borrowed more money from Motorola, the lawsuit
says.

At about the same time, Nokia was also seeking a foothold in Turkey, and
in 1997, it began talks with Telsim,
according to the lawsuit. On Oct. 9, 1998, Nokia and Telsim agreed that
Nokia would provide equipment and
services and guarantee a line of credit extended by ABN Amro Holding NV
to finance the purchases to be made
by Telsim. The credit line grew to $800 million by 2000.

As Telsim's debt to Nokia grew, the Uzan family was also seeking more
money from Motorola. In September 1999, Hakan and Cem Uzan met with
Robert Galvin -- then chairman of the executive committee, a former CEO
and the son of Motorola's founder -- at his offices in Schaumburg for
about an hour.

Schaumburg Meetings

``They were telling Bob how much they respected Motorola, how much they
respected him,'' recalls Hughes, who was Motorola's liaison to Telsim.

During the same visit, the Uzan brothers also met with Motorola's CEO at
the time, Christopher Galvin, Robert's son, Hughes says. Motorola agreed
to lend Telsim another $180 million for equipment after Telsim promised
to look for other sources of funding in the future, Motorola's lawsuit
says.

The additional money was part of a series of equipment loans. Starting
at $360 million in 1998, Motorola amended the agreement eight times, and
by the end of 2000, the debt totaled $1.83 billion, the lawsuit says.

Telsim's finances seemed to worsen as the company borrowed more. Hakan
Uzan furnished a 1998 income statement for privately held Telsim to
Bloomberg News during a 1999 interview. That statement showed net sales
of $262 million in 1998, more than five times the previous year's
figure. Still, the company lost $55 million in 1998 -- almost double its
1997 loss.
The operating profit was wiped out by growing finance charges, according
to the income statement. No other financial statements are available.

Offshore Accounts

A year later, the Uzans spent money to expand their media holdings,
starting with the Star newspaper, a daily with color photographs and big
headlines.

According to Rakoff's ruling, the Uzans were also funneling money from
the Motorola and Nokia loans into offshore accounts controlled by family
members. Rakoff, basing his decision on a report by Motorola's forensic
accountant, Tony Samuel of the London office of PricewaterhouseCoopers
LLP, said the Uzans had diverted at least $1.14 billion from 1999
through 2001.
Of that, at least $538 million in cash and other assets went from Telsim
to other Uzan companies and accounts, Rakoff ruled. At least $133
million went to four offshore entities in the Netherlands and Curacao,
an island in the Netherlands Antilles.
Yachts, Apartments

The Uzans used the companies -- named Brampton, Kingsbury, Klavma and
Novabrands -- to move $90.1 million in cash to themselves and $77.9
million to pay for and maintain at least four yachts, seven Manhattan
apartments, two jets, one helicopter and personal credit card bills,
Rakoff ruled.

The Uzans diverted the other half of the money -- about $552 million --
by overstating expenses paid to Uzan companies, according to the ruling.

In December 2000, with Telsim's losses mounting and its debts overdue
and the Turkish economy in crisis, Hakan Uzan returned to Chicago to
meet Motorola's Chris Galvin. Over lunch, Hakan asked for more money to
help him buy equipment, citing the collapse of the Turkish financial
markets, Hughes says.

A month earlier, overnight interest rates had shot up to 1,900 percent
as Turkish banks that were strapped for cash sought funding, and the
International Monetary Fund stepped in with $7.5 billion of emergency
lending for Turkey.

A Coincidence?

Hakan told Galvin he needed more money for Telsim because the Uzans had
spent part of the previous Motorola equipment loan to pay depositors
during a run on an Uzan bank, Motorola's lawsuit says. ``He requested
$35 million,'' Hughes says. ``We said we weren't going to do that. We
had given enough money.''

The next month, the New York Post published an article saying that Cem
Uzan was buying a penthouse in the Trump World Tower across the street
from the United Nations -- one story above an apartment owned by
Microsoft Corp. founder Bill Gates -- for $38 million, a record for a
Manhattan condo at the time.

Motorola's Hughes, who read the article just before paying a visit to
the Uzans in Istanbul, found the price tag eye-catching for another
reason: It was almost exactly the same amount Hakan had asked Galvin for
the prior month.
``Gosh, it's pretty close to the $35 million you asked us for,'' Hughes
recalls saying to Hakan over lunch. ``He had this pretty sheepish grin
and said, `We were hoping you wouldn't find out, because the info was
supposed to remain confidential.''' The purchase of the penthouse was
never completed.

A few months later, on April 30, 2001, Telsim missed a $728 million loan
payment to Motorola, according to Motorola regulatory filings at the
time. Motorola should then have been able to take control of Telsim
under terms of their July 1998 loan agreement. The Uzans had placed 8.53
million shares -- equal to 66 percent of Telsim's capital -- in escrow
at UBS AG.

Stakes Shrink

It was not to be. In the meantime, Telsim had issued 25.8 million new
shares to another Uzan family company, Standart Telekomunikasyon AS,
giving it a 66.5 percent stake in Telsim, according to the lawsuit. The
Telsim stake in escrow for Motorola got diluted to just 22 percent.
Nokia had had a similar agreement that would have given it 7.5 percent
of the company; instead, its stake shrank to 2.5 percent.

In January 2002, Motorola and Nokia filed their lawsuit. Motorola said
it was out about $2 billion in loans, and Nokia said it was owed $435
million in cash and more than $280 million in equipment the Uzans had
never paid for.
Six months later, Cem Uzan quit his company posts and founded the Young
Party, which advocates ending Turkey's ties with the IMF and
renegotiating trade agreements with the European Union. Cem quickly
built a base of support among people who resented the IMF's austerity
program, which had forced the government to cut spending and raise taxes
to bring down inflation.

Text Messages

Cem benefited from the Uzans' media holdings. He used the Uzans'
television and radio stations to broadcast his speeches live while the
newspaper ran his messages on the front page as news. Telsim came to his
support as well, sending its 6 million subscribers text messages of
Cem's musings. Each of Cem's rallies started with a concert of Turkish
pop singers, who were under contract to Star TV, and organizers often
provided a free meal for all attendees.

The Young Party won 7 percent of the votes in Turkey's November 2002
elections, falling short of the 10 percent required to get seats in
parliament.

Companies Seized

The winner of the elections, Prime Minister Erdogan's Islamic Justice
and Development Party, moved against the family in June 2003. The Energy
Ministry seized the two utility companies owned by the Uzans, saying
they had violated their license agreements repeatedly. On July 4,
regulators seized Imarbank after Kemal Uzan, his younger brother Yavuz
and five other board members resigned without giving any reasons.

While the bank had less than $1 billion of deposits on its balance
sheet, regulators discovered other records that indicated the bank had
collected another $5 billion from customers yet never reported the
deposits to authorities.
Imarbank branches around the nation had software designed to keep two
separate sets of records, Engin Akcakoca, chief banking regulator at the
time, said at a press conference in July 2003. One set enabled
depositors to withdraw from and shuffle money between their accounts;
the other was used for showing banking inspectors and for reporting to
regulators.
``We're faced with seriously organized and illegal transactions,''
Akcakoca said at the press conference.

Armed Guards

A month later, Hakan Uzan gave an interview to Bloomberg News -- not at
Telsim headquarters but in a hotel room, where first, a bodyguard eyed
all those who stepped off the elevator on the fifth floor and then two
more armed guards questioned visitors to Hakan's suite.

Two days after the hotel interview, Hakan and Cem Uzan resigned from the
Telsim board, saying they wanted to protect the company from further
``illegal'' actions by the government. Five days later, when prosecutors
ordered Hakan and his father detained for questioning, the two were
missing.

Turkish authorities say some members of the family may be in the U.S. In
December, Turkey asked the U.S. to extradite Kemal and Yavuz. U.S.
Embassy spokesman Joe Pennington in Ankara says the U.S. hasn't located
either man.
Whether or not the Uzans themselves are found, Motorola and Nokia want
to find the family's money. The
phonemakers have already seized Uzan assets worth about $150 million,
including airplanes, real estate in New
York and London, German printing plants and millions of dollars in U.S.
bank accounts

Swiss Banks

If the Turkish government sells the Uzan companies that it has seized,
including Telsim, the Turks may be the first to be repaid with the
proceeds.

Motorola has asked Rakoff to order several Swiss banks to open their
records, so it can get the $800 million it says the Uzans have stashed
at banks including UBS, the No. 1 European bank by assets, and Credit
Suisse Group, the No. 2 Swiss bank.
UBS spokesman Rudolf Buergin says the bank must respect local law. He
declined to comment on the Uzans.
Credit Suisse spokesman Andres Luther also declined to comment on the
Uzans.

Even if they were to gain access to any Swiss accounts, Motorola and
Nokia would have to get in line along with the Uzans' other creditors,
including people like Sevgi Aygunduz, whose family lost 25 billion liras
($18,800) in Imarbank. ``We know the Uzans are crooks, but why didn't
the government inspect and prevent these crooks?'' Aygunduz says.

Cem Uzan says there is no more money. ``You can't hide $1 billion,'' he
said in the Star TV interview. ``You can hide $1 million in the world
banking system today, and nobody can find it. It's not possible to hide
accounts with hundreds of millions of dollars in them.''

If that turns out to be the case, then the only ones who'll be made
examples of are those who entrusted their money to the Uzans: Motorola
and Nokia.

To contact the reporters on this story:
Yalman Onaran in Istanbul [email-masked]
Liz Chong in London [email-masked].

To contact the editor for this story:
Ron Henkoff at [email-masked].
Last Updated: February 20, 2004 11:16 EST

 http://quote.bloomberg.com/apps/news?pid=nifea&&sid=aKqz0P1JXoS0

--
    "NEXTEL-1 IT'S NOT JUST NEXTEL"
  Note The New address
Subscribe to Nextel-1: http://www.groups.yahoo.com/subscribe/NEXTEL-1

  "NEXTEL2 FOR iDEN SOFTWARE DEVELOPERS"
Subscribe to Nextel2: http://www.groups.yahoo.com/subscribe/NEXTEL2

  "WIRELESS FORUM HOMELAND SECURITY GROUP"
     The Complete Resource for Wireless Homeland Security.
Subscribe to WFHSG:  http://www.groups.yahoo.com/subscribe/WFHSG