Fraud charges ground high-fliers

THE high-rolling founders of the German company that owns the rights to The Muppets are now starring in a Munich court on fraud charges. The Haffa Brothers are fast becoming a cautionary tale for new-economy hubris. Just a few years ago, they were high-flying symbols of Germany's flourishing new economy.

Thomas Haffa and his younger brother Florian founded EM.TV, a company listed on the Neuer Markt that gained international clout after purchasing the rights to productions such as The Muppet Show, Sesame Street and Formula One car racing. The pair were eagerly photographed by business and celebrity magazines. Now they are charged with defrauding shareholders.

The extent of their fall has been apparent in their trial during the past week, where the once-celebrated men have been booed by courtroom observers.

During the new-economy boom years, EM.TV was a darling of the Neuer Markt, which was seen as Germany's answer to Nasdaq. But as the fortunes of EM.TV and other firms began to dry up, so did those of the Neuer Markt, which closed down in September. EM.TV shares have fallen from a high of e110 in 2002 to less than e1 today.

Munich's public prosecutor has accused former chief executive Thomas and Florian, who served as EM.TV's chief financial officer, of cooking the books and making falsely optimistic statements in order to shore up the company's sagging share price. The executives are also accused of concealing millions in losses while continuing to paint a rosy picture of the company.

In 2000, Thomas Haffa promised shareholders a year-end profit of more than Dm600m or e310m (£197m). In the end, the company posted a Dm2.8bn loss.

Haffa has become the first manager of a Neuer Markt company to face charges in court for falsifying a revenue report and deceiving shareholders. Public Prosecutor Peter Noll alleges that the Haffas knowingly issued false half-year results in 2000, 'incorrectly interpreting or veiling' the company's true financial position. In presenting his case, Noll has quoted Florian: 'We stand firmly behind our forecasts. Business is doing great.'

Thomas Haffa has denied all the allegations directed at him and his brother. The two 'presented the condition of the company to the best of their knowledge', he has said.

Forecasting results can be difficult in the tricky world of licensing, he said, where revenues are dependent on large deals that do not always happen on a continuous basis. 'With a single large contract, we could have still achieved our forecast,' he told the court.

The fallen pair's greatest defender so far has been defence witness Leo Kirch, a fallen media icon himself. Thomas Haffa was once a protege of Kirch and the two continued to do business together after Haffa set off on his own with EM.TV.

Kirch's testimony this week supported Haffa's denial of one charge brought by prosecutors: that the company booked revenues from a Dm60m deal with Kirch during the first half of the year, even though the signed contract was not executed until autumn. Kirch told the court he had verbally agreed to the deal in mid-June 2000, and that he considered it to be a 'fully executed verbal contract'.

The Haffas' trial is the first in a series against high-flying managers who once stood to represent the opportunities offered by the Neuer Markt. Next up in the dock is former Comroad chief executive Bodo Schnabel, who faces charges in Munich for falsifying 98% of his company's revenues. EM.TV has now become a symbol for the bankruptcies and scandals that led to the Neuer Markt's demise.