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Documents Detail P&G's Claims of Fraud : Courts: Previously sealed information about allegations against Bankers Trust was sought by BusinessWeek.

October 04, 1995|From Associated Press

CINCINNATI — In court documents unsealed Tuesday, Procter & Gamble Co. alleged that Bankers Trust New York Corp. defrauded P&G and eight other customers, causing them to lose hundreds of millions of dollars.

The 750-page documents are the most detailed account of the company's dealings with Bankers Trust to be made public. They paint a picture of greedy and deceptive practices.

In the papers, P&G said the "fraud was so pervasive and institutionalized that Bankers Trust employees used the acronym 'ROF'--short for rip-off factor--to describe one method of fleecing clients."

The documents were unsealed by U.S. District Judge John Feikens, who granted P&G's request to add civil racketeering charges to its lawsuit against Bankers Trust over derivatives, a type of investment with values based on underlying assets.

The ruling, which Bankers Trust fought, is the latest in a series of calamities for the bank, the nation's seventh-largest financial institution.

Bankers Trust's derivatives problems and allegations of deceptive sales practices have been widely publicized over the last year. The bank has lost millions in its derivatives and trading businesses and is rumored to be a takeover candidate.

The documents unsealed Tuesday will be the basis of a cover story about the lawsuit in an issue of BusinessWeek to hit newsstands Friday.

The magazine had obtained a copy of part of the sealed documents three weeks ago, but was prohibited from printing the article under Feikens' order. His decision Tuesday to let the documents be made public allowed BusinessWeek and other news organizations to print stories.

"Bankers Trust will be exposed to yet another round of adverse publicity regarding its derivatives sales practices," said Raphael Soifer, a bank analyst at Brown Brothers Harriman & Co.

In a lengthy statement about the upcoming BusinessWeek article, Bankers Trust said that some of the conversations between its employees were "irresponsible and regrettable." But it contends that P&G is manufacturing "a distorted view" of the matter and that the company knew the risks of derivatives.

P&G, based in Cincinnati, sued New York-based Bankers Trust last year to recover losses from derivatives. The company is seeking $195 million.

Bankers Trust has denied the allegations.

If P&G can prove its allegations constitute racketeering under the Racketeer Influenced and Corrupt Organizations Act, it could claim triple damages. The RICO statute is rarely successful in civil cases, however.

In more than 300 pages of documents, P&G said Bankers Trust "engaged in a pattern of fraud and misrepresentation going well beyond their victimization of the Procter & Gamble Co. P&G was but one of a series of companies lied to, exploited and cheated by the defendants."

P&G also accused Bankers Trust of engaging in a "pattern of mail, wire and securities fraud spanning a number of years and involving multiple victims."

Bankers Trust clients lost "hundreds of millions of dollars" because of the alleged fraud, the documents said.

P&G identified eight other companies it said also were defrauded by Bankers Trust. They are: Gibson Greetings Inc., based in Cincinnati; Jefferson Smurfit Corp./Container Corp. of America of Clayton, Mo.; Federal Paper Board; Sandoz Corp.; Air Products and Chemicals Inc. of Allentown, Pa.; Sequa Corp.; P.T. Adimitra Rayapratama, and Equity Group Holdings.

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