But don’t imagine that last month’s verdict in a Munich court against Thomas and Florian Haffa, founders of media-rights company EMTV, attests -- by its very rarity -- to how upstanding the German stock market is. Hardly. “German judges tend to think the stock market is just a casino where you try your luck and live with the consequences,” says attorney Klaus Rotter, who filed a brief in support of the prosecution’s case. Thus judges have been reluctant to side with investors in corporate governance disputes.
The Munich verdict could help change that, contends Rotter, a senior partner at Rotter Rechtsanwälte in that city. He is using the judgment as a wedge to bring Germany’s largest-ever shareholder-rights class-action suit in civil court. “I’d say we have a better than 60 percent chance of winning,” says Rotter, 37. The odds without the criminal court judgment to set a precedent? Close to zero, he says.
The case revolves around overoptimistic forecasts the Haffas made to analysts and journalists between May and November of 2000. Thomas and Florian, CEO and CFO, respectively, at the time predicted earnings for that year of E600 million ($552.9 million), based in part on the sale of media rights to Jim Henson’s Muppets and to Bernie Ecclestone’s Formula One racing. The court found that the Haffa brothers neglected to mention that they were counting full-year 2000 revenues from EMTV’s 50 percent holding in Formula One even though the company had owned that stake only since the summer of that year. Beset by problems, EMTV posted a E2.8 billion loss instead of a E600 million gain. Since February 2000 its market capitalization has plummeted, from E15 billion to E100 million.
The Haffas, who resigned after the loss, argued that German bookkeeping rules permitted them to include Formula One’s first-half sales. The court held that, regardless of the accounting rules, the pair had misled investors, and it fined them E1.44 million. The levy won’t put much of a dent in the brothers’ estimated E250 million fortune, but Rotter’s suit on behalf of 500 investors could sting: He plans to seek E25 million when he files the case in Munich this October. “We hope we can set a precedent there as well,” he says.
