(Bloomberg) -- Swiss prosecutors are investigating a series of financing deals at a ski resort owned by Czech property billionaire Radovan Vitek that were raised in a U.S. lawsuit over allegations that he defrauded a New York hedge fund and a Czech investment firm of more than $1 billion.
Prosecutors in the canton of Valais are looking into a 2016 capital raising by Remontees Mecaniques Crans-Montana Aminona SA (CMA) and how it used the money to increase its stake in a related property company. Valais Attorney General Nicolas Dubuis said the financing round is under investigation, but declined to give further details.
The transaction was cited over two pages of a complaint filed against Vitek and his property company CPI PG last week by New York hedge fund Kingstown Capital Management LP and another investment firm, Investhold Ltd. CPI denies the allegations.
The CMA deals are at the heart of a testy relationship between the resort town of Crans-Montana, which first opened a funicular to entice skiers to its glacier-topped slopes in 1911, and Vitek since he bought a controlling stake in the lift-operator in 2015. Municipal leaders have had concerns about the financing deals, but were reluctant to report them to authorities to avoid disrupting tourism in the region, according to the New York lawsuit.
Kingstown Capital and Investhold said Swiss prosecutors should look at whether it was illegal for CPI to use its controlling stake in CMA to raise money to consolidate control of CMA, and then turn around and use the funds to boost its stake in CMA Immobilier SA, a local property development company.
“Such a major acquisition of assets from a shareholder by means of a capital increase is a violation of the Swiss Code of Obligations,” Kingstown Capital and Investhold argue in their April 10 complaint.
An audit of the financing round commissioned by the local town council showed that the transactions constituted “potentially criminal acts of misappropriation, document forgery, fraudulent declarations, and illegal and unfair management” by CMA board members, the companies said in the lawsuit.
Philippe Magistretti, CMA’s managing director, said he hasn’t been questioned by Valais prosecutors or even asked to discuss the matter -- and that the whole issue is overblown because the CMA Immobilier share purchase never went through.
The capital increase had no material impact on the control of CMA Immobilier because CMA already controlled a dominant stake in the property developer, he said in a phone interview. In addition, the capital increase by CPI was done at 40 centimes a share when the company had a book value of 25 centimes a share, Magistretti said.
“If anything minority shareholders benefited, because though the shareholders were diluted in terms of percentage their shares were concentrated in terms of value,” he said.
CPI denies the charges that it ran a fraud scheme involving shell companies and said the U.S. lawsuit is an improper attempt to pressure it over a related legal action filed in Luxembourg.
The lawsuit highlights growing tensions between the town and Vitek.
CMA closed the lifts at the height of the spring skiing season a year ago without warning, calling it an insult that the town council was hesitating to award it 800,000 Swiss francs ($799,000) in compensation for the cost of late-season openings and running World Cup races, given what CMA had done to revive the resort’s fortunes. The spat was resolved within a matter of days, but not before the town council issued a public statement to say CMA was harming the resort’s image.
Vitek, 48, began his career as an entrepreneur importing blankets from Germany as an economics student after the collapse of communism in 1989 in what was then Czechoslovakia. He set up a fund to invest through the country’s voucher privatization program, renaming it CPI in 1998. CPI soon expanded across the Czech Republic and Germany, becoming Berlin’s largest commercial property landlord and making Vitek a billionaire in the process.
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