Trump writ turns up the heat

PUBLISHED : Monday, 15 August, 2005, 12:00am
UPDATED : Monday, 15 August, 2005, 12:00am

Fresh lawsuit demands Hong Kong partners provide access to financial records

Tensions are rising in the legal fight between Donald Trump and his partners, Henry Cheng Kar-shun and Vincent Lo Hong-sui, with the Hong Kong businessmen allegedly refusing to provide details of their planned US$1.76 billion property sale in New York and making threats to exclude Mr Trump on his share of the proceeds.

Last week, the American property developer won a court order that prevents Mr Cheng and Mr Lo from disposing of the proceeds from the transaction, which is scheduled to close on Wednesday.

Mr Trump, in a fresh writ to replace the US$1 billion lawsuit filed last month, is also seeking access to the financial records of a partnership that controls the 92-acre property, of which he owns a 30 per cent interest.

'The new claims seek access to the partnership's books and records and the information concerning the sale of the property, which we allege the Cheng group has not fairly disclosed,' said Michael Bowe, partner at Kasowitz, Benson, Torres & Friedman, which is representing Mr Trump.

'The court order precludes them from doing anything with the proceeds until the case is resolved.'

The fight between Mr Trump and his Hong Kong counterparts is reminiscent of the bickering contestants that feature in the reality television series, The Apprentice, of which Mr Trump is the star.

Mr Trump filed his original law suit on July 11, alleging 'a staggering breach' of fiduciary duty after Mr Cheng and Mr Lo agreed to sell the development to Gary Barnett for US$1.76 billion.

Mr Trump said the selling price was too low and encouraged his partners to explore counter-offers as high as US$3 billion but the Hong Kong businessmen allegedly refused to do so.

He said their failure to entertain the higher bids indicated 'extreme gross negligence' and - at worst - that the Hong Kong businessmen were 'motivated by self-interest and self-dealing'.

Mr Barnett, believed to be backed by the Carlyle Group and Extell Development, has since lined up deals to 'flip all, or substantially all of the property, to other buyers at an enormous profit', according to the new lawsuit.

One deal would see 1,325 flats in three buildings sold for US$816 million - or 46.36 per cent of the US$1.76 billion sale price. This would leave about 4,400 flats and several hundred thousand square feet of retail space left to be sold.

The re-selling activity was further evidence that Mr Cheng and Mr Lo had parted with the property for an amount far below its market value. To date, neither businessman has explained why they accepted the apparently low offer.

Mr Trump wants to learn more about the circumstances under which the deal with Mr Barnett took place and the partnership's operations but the Hong Kong businessmen allegedly refuse to co-operate.

According to Mr Trump, the partnership agreement provides that 'all records and accounts of the partnership ... shall be open for the inspection and examination' of the partners.

The Hong Kong businessmen have 'repeatedly refused to permit me to review the partnerships' books, records and accounts unless I first agree to a so-called 'protocol' limiting the exercise of my inspection rights,' Mr Trump said.

He further alleges the partnership failed to report US$19.66 million in distributions made to Mr Cheng, Mr Lo and other investors.

He also accuses his partners of trying to 'blackmail' him after they allegedly sought a general release absolving them from liability for any misconduct, as a condition for Mr Trump receiving his share of the sale proceeds.

After he refused, the Hong Kong businessmen 'threatened that unless I provided a general release, they would not distribute my share of the proceeds or other partnership monies due to me and would instead re-invest that cash in a different unidentified property', according to Mr Trump.