Mammoth Lawsuit

In a case closely watched by the corporate world, Deutsche Telekom faces a massive lawsuit brought by more than 800 law firms representing thousands of Telekom shareholders who say the company inflated the value of its real estate holdings and misled them.

The complaints relate to events surrounding the company's third share issue in 2000, when Deutsche Telekom sold 200 million shares released by Germany's state development bank.

The plaintiffs, many of whom are small shareholders and invested their life savings in what they perceived to be a safe bet, say they were cheated into buying shares by misleading prospectus information.

One of their main complaints is that Deutsche Telekom overvalued property assets in the prospectus. The issue price was 66.50 euros per share, six times what the shares are worth today. Shareholders say they suffered a collective loss of 100 million euros ($157 million) because of it.

The company is also alleged to have concealed its plans to buy US wireless company VoiceStream for about $35 billion. It agreed on the acquisition a month after the subscription period ended. In 2005, Deutsche Telekom settled with US shareholders who had sued in a class action suit over the same issues for $120 million.

Telekom to change defense strategy

The company has denied any wrongdoing in the current case.

"We reiterate what we have said all along: the prospectus was fine, we informed shareholders comprehensively and properly, and we are confident that the court will also see it this way," a spokesman for Deutsche Telekom told news agency Reuters.

But the company is expected to change tack in its defense strategy on Monday, April 7, in court.

German media reported that lawyers for Telekom, who had thus far attempted to prove that the share issue in 2000 was above reproach, are to argue that shareholders then "made their moves at the height of the new economy" at a time when the controversial asset value of property didn't play any role.

Law firm Tilp, which represents numerous plaintiffs, condemned the alleged change in tactic by Telekom as an "apparent effort to brand those who bought Telekom shares as speculators."

The firm said it had passed on a dossier to the court with statements by then Telekom managers about the "people's shares."

"The company's submission, so shortly before the start of the process, is a slap in the face for millions of T-shareholders who were lured by a massive, months-long advertising campaign about Telekom's supposedly gilt-edged 'people's shares,'" the law firm said in a statement.

Case moved to large public hall

The unprecedented class-action-style case, which may determine how such cases are decided against companies in future, will be watched closely in Germany.

The massive number of plaintiffs and a potentially huge public audience have already led authorities to move the high-profile case hearing to a large, specially rented public-events venue in the city of Frankfurt. Deutsche Telekom Chief Financial Officer Karl-Gerhard Eick and former chief executives Kai-Uwe Ricke and Ron Sommer are due to appear as witnesses.

In 2005, German lawmakers created a separate law to govern such mass claims in cases concerning capital markets such as the one facing Telekom.

"Lawmakers wanted to ensure that it's not 17,000 plaintiffs suing a company en masse, but rather that a model case clears up the fundamental questions in a higher court," shares expert Ruediger von Rosen told German news agency DPA.

The case is expected to drag on for years. Seventeen court hearings are expected between Monday and the end of May. A second case of its kind is already being prepared as shareholders plan to sue over alleged irregularities in the listing of Deutsche Telekom capital in 1999.