The biggest trial in Germany's economic history opens on Monday, pitting telecom company Deutsche Telekom against 16,000 angry shareholders. A law reminscient of US "class action" lawsuits passed in 2005 is being applied for the first time.
Deutsche Telekom will be in the dock from Monday in a case already rewriting German legal history, brought on behalf of 16,000 shareholders who feel cheated by the former public phone company.
More than 800 law firms are representing plaintiffs reportedly claiming to have suffered a collective loss of 100 million euros (157 million dollars) because the company was overvalued at the time of its 2000 listing.
The participants and the potentially huge public audience were not expected to fit into a court room and therefore the Frankfurt high court will be sitting in a conference centre in southwestern Germany.
In addition to the venue, the law has also been changed to cope with the unprecedented case.
Since the German legal system did not allow US-style class action suits in which a single plaintiff sues on behalf of numerous others, each of Deutsche Telekom's accusers would have had to act on his own.
Faced with the prospect of thousands of individual claims, lawmakers in 2005 created a similar mechanism that is now being used for the first time -- and sometimes referred to as "Lex Telekom".
The case has been years in the making. A number of hearings have taken place so far but these have dealt with procedure whereas Monday will mark the start of arguments and testimony.
Among the witnesses will be Ron Sommer, the flamboyant former Deutsche Telekom boss who headed the company at the time of its 2000 listing on the Frankfurt Stock Exchange. It is still unclear when he will be called.
Deutsche Telekom vigorously denies any wrongdoing and has said the case will serve to confirm that the listing process was beyond reproach and clear the company of any suspicion.
In 2000, it listed a third slice of its capital at a price of 66.5 euros per share.
Amid general enthusiasm for emerging telecommunications technology, it seemed one could not go wrong by buying the so-called "T shares". At the time practically every German household still held a contract with the former public phone company.
And the fact that the state still held a capital investment in the company seemed as good as a royal stamp of approval.
Demand far exceeded supply. One of the plaintiffs, a pensioner from southwest Germany, bought shares for more than a million euros. And like millions of others he saw his 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 Friday, Deutsche Telekom shares stood at 11.18 euros at the close of trading on the Frankfurt stock exchange, roughly six times lower than during the listing.
It is the pensioner who lost his nest-egg who is taking on Bonn-based Deutsche Telekom in the name of his fellow 16,000 shareholders seeking damages and interest.
The main argument is simple -- the company is accused of inflating the value of its real estate holdings and misleading potential shareholders.
But the case promises to touch on a range of thorny subjects, and to shine a spotlight on a particular period in Deutsche Telekom's history, one marked by excess.
One of the issues in the pandora's box is the acquisition of the US-company Voicestream, which will be tackled in early testimony. Then there is also the ruinous acquisition of third generation mobile phone licences and the way in which Deutsche Telekom underestimated its market competition.
There are expected to be 17 court hearings between Monday and the end of May.
But this is will be just the beginning. The case could carry on for years and a second of its kind is in the pipeline as hundreds of shareholders prepare to sue over alleged irregularities in the listing of Deutsche Telekom capital in 1999.
Date created : 2008-04-07