Racketeering Claims Against Turkish Network Dismissed

Telsim, Turkey's second largest mobile phone company, says that it welcomed a decision by a U.S. District Court Judge, the Honorable Jed S. Rakoff, to dismiss RICO (Racketeer Influenced and Corrupt Organizations) claims filed on behalf of Motorola and Nokia against the Uzan family, owners of Telsim. Judge Rakoff's order follows an earlier decision by a three-judge panel of the United States Court of Appeals, Second Circuit, to dismiss all RICO claims brought against the Uzan family.

The Judge did however say that Motorola and Nokia could later reinstated the RICO claims against the Uzan family.

Following this decision, Telsim is reiterating its assertion that the claims of Motorola and Nokia should be arbitrated under Swiss law, which it says was originally stipulated under their respective vendor financing agreements. The Judge upheld the claimants request to hold the court case in the USA, and not in Switzerland.

Hakan Uzan, Chief Executive of Telsim, commented, "We are pleased that, after nearly a month of consideration, Judge Rakoff has dismissed the RICO claims brought against me and several members of my family. This dispute has always been a commercial disagreement among Telsim, Motorola and Nokia -- precipitated by the rapid, unpredictable economic collapse of the Turkish economy in the last four years -- and not by any alleged fraud. Our objective has been, and continues to be, to reach a resolution of this dispute in Swiss arbitration that would reschedule our debt with Motorola and Nokia. Continued attempts by these companies to cast this as anything other than a commercial dispute only serves to negatively impact the value of their commercial and financial interests in Telsim."

In 1998, Motorola entered into overlapping agreements with Telsim and Rumeli Telefon, under which it would lend Telsim US$360 million to purchase Motorola cellular infrastructure and equipment, and US$200 million to enable Telsim to acquire a 25-year nationwide cellular license. As collateral, Rumeli Telefon -- which then owned approximately 73.5% of Telsim -- pledged 51% of Telsim's outstanding shares. In subsequent years, Motorola provided additional financing -- eventually totaling approximately US$2 billion -- and the pledged interest was increased to 66% of Telsim's outstanding shares.

Also in 1998, Nokia entered into a smaller but similar arrangement with Telsim and Rumeli Telefon. The initial loan was extended by Nokia's bank, ABN-Amro, backed by the credit of Nokia. As security, Rumeli Telefon pledged 5% of Telsim's outstanding shares. In subsequent years, Nokia extended additional financing to Telsim, approximately US$800 million in all, and Rumeli Telefon increased the pledged interest to 7.5% of Telsim's outstanding shares."

Posted to the site on 7th April 2003