RAROTONGA, Cook Islands — In the frantic final days leading up to his acquisition of MGM/UA Communications Corp., Italian financier Giancarlo Parretti signed an agreement trading 10 million shares of studio stock he didn't yet own for an insurance bond that allowed him to close the deal, according to documents filed here in support of a lawsuit.
Parretti assigned the MGM/UA shares to Cook Islands-based Century Insurance Ltd. on Oct. 29, three days before the studio purchase was consummated, according to an agreement signed by Parretti and contained in the court record. The MGM/UA stock was valued at $17.50 a share, the same price that Parretti later paid investor Kirk Kerkorian and other stockholders.
Parretti was chairman of Pathe Communications Co. at the time, the company that later merged with MGM/UA. In a letter to Century that has been introduced as court evidence, he wrote: "Pathe declares that it owns clear and unencumbered title to the stock and is capable of making this assignment and of delivering scrip for the stock hereunder."
If Parretti completed financing for the faded MGM studio with shares he didn't own, as the suit implies, there may have been irregularities in the deal. The case also suggests that Credit Lyonnais Bank Nederland, Parretti's chief lender for the MGM/UA deal, may have financed the final part of the acquisition with an unsecured loan.
Parretti has denied any wrongdoing in the case. The Century Insurance plan was one of several he allegedly devised to obtain the last block of money needed for the $1.4-billion buyout. The Cook Islands court case suggests that Parretti attempted to put together a series of last-minute deals to complete the purchase as the clock wound down on the payment deadline.
The file is rife with puzzling references to mysterious European money men, international financing plans and the high-stakes legal maneuvers of Washington lawyers hired to facilitate matters. Behind the scenes, the agreement with Century unraveled weeks after the acquisition occurred. It appears to have become a key problem in Parretti's continuing struggle to hold the studio together.
The court file indicates that Parretti met Donald A. Davies, Century's chief executive, in October. The two men struck a deal shortly afterward in which Davies would issue a $175-million insurance bond in return for a $1.75-million fee, according to filings. Davies charges that Parretti also agreed to sign over 30 million shares of stock in various companies he owned as collateral, including the 10 million MGM/UA shares, which are interchangeably referred to as MGM-Pathe Communications Co. stock in court documents.
The insurance bond was issued just before Parretti acquired MGM/UA in November, according to Davies. He contends that Parretti subsequently broke his agreement to pay the $1.75-million fee and that Credit Lyonnais refused to release the shares pledged to Davies.
Davies sued Credit Lyonnais over the disputed stocks Jan. 15, maintaining that the European banking giant is illegally holding the Parretti shares in an escrow account. The insurer also charges that the stock gives his firm ownership of as much as 35% of MGM-Pathe.
An MGM-Pathe spokeswoman has called Century's claim "bogus." The studio maintains that Century never posted a legitimate bond on its behalf. In a letter included in the court file, an attorney for Parretti says that there is no valid bond because Century didn't provide satisfactory financial statements, bank references or guarantees from its parent company.
But the Cook Islands court record contains numerous letters and documents that allude to the bond and the Parretti-controlled shares that allegedly were put up as collateral.
In a Dec. 24 letter to Davies, Credit Lyonnais Bank Nederland executive Dallis Radamaker wrote that he had "sent an urgent fax to Mr. Parretti to obtain an explanation of non-payment of the premium due to Century for the guarantee bond."
Concurrently, in a letter characterized as "extremely urgent," Radamaker told Parretti that failure to pay the premium "may result in immediate cancellation" of the policy.
Credit Lyonnais has challenged the jurisdiction of the Cook Islands court to hear the case. And the bank has told Davies that his dispute is properly with Parretti. Patrick Bastin, head of entertainment lending for the Rotterdam-based bank, has declined to comment on the suit.
Chief Justice Clinton Roper of the Cook Islands, a group of small islands 2,000 miles northeast of New Zealand, has put a restraining order on the shares pending movement in the case.