KPNQwest could be tainted by alleged Ebone fraud

KPNQwest's recent purchase of Ebone involved corruption at GTS, says a lawsuit, as the company's bankruptcy drama continues

While bankrupt pan-European service provider KPNQwest's network hangs in the balance, more bad news is emerging from Ebone, the network it purchased earlier this year. Ninety-five disgruntled shareholders have launched legal proceedings against the four senior GTS executives that sold Ebone to KPNQwest, alleging they lied and lined their own pockets through secretive pay agreements. The suit, filed last week in New York, alleges that the executives, Robert Amman, Robert Schriesheim, Duncan Lewis and Grier Raclin, secretly agreed huge pay rises and bonuses for themselves, while publicly "restructuring" the company from 2000 to the end of 2002, when KPNQwest bought Ebone. "The defendants paid themselves secret bonuses to put the company into bankruptcy," said David Kaplan, a member of the steering group representing GTS shareholders. According to information gathered by the group, the three executives awarded themselves ten-fold salary and bonus increases in May 2001, which were kept secret till the day after the sale of GTS's assets was announced. The suit claims the three stood to receive a total of $21m (£14.7m), a sum which amounted to 52 percent of the stock value of the company at the time, said Kaplan. By comparison, Enron's much criticised "retention payments" only amounted to a few percent of its value. Ironically, the shareholders' suit owes its existence to the Internet, as the group bringing it gathered in Yahoo! groups devoted to shares in GTS. "It's a tribute to the power of the Internet. Our group arose out of Yahoo! GTS message board and other clubs," said Kaplan. GTS executives' weekly briefings were knowingly leaked to these boards, to give a false impression of business at GTS, he said. The 95 members lost around $25m between them, amounting to about 10 percent of shares in the company. The group has all chipped in to a legal fund, but it is taking on a powerful group, whose legal liability insurance will fund a long battle, unless the defendants' legal advisors decide the case is unwinnable. "They have 20 days to respond," said Kaplan, acknowledging that the majority of such cases do not actually reach court.

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