Grupo Salinas - The SEC Affair

The SEC Affair

In June 2003, Ricardo Salinas and Moises Saba took the credit that Nortel Networks, a Canadian company, had with Unefon. They did so with their own resources with the sole purpose of rescuing the company. This investment of both businessmen prevented that Unefon filed for bankruptcy and topped off by the creditors.

On June 30, 2003 TV Azteca must submitted a report on the Mexican Stock Exchange (BMV) and the New York Stock Exchange (NYSE) for the fiscal year ended December 31, 2002 and about subsequent events to June 30, 2003. The preparation of the report was given by Scheinman and his team of lawyers, TV Azteca’s advisers in securities in United States since 1999. Once concluded the report to the NYSE, it was translated into Spanish and presented to the BMV.

On December 24, 2003 appeared in The New York Times, news about the assessment of the lawyers Scheinman and Akin Gump to not represent TV Azteca, because they alleged divergent views on the public disclosure of the purchase of Unefon’s debt. During the last week of December 2003 and early January 2004, the TV Azteca’s Board and its new legal team in the United States, Mayer Brown, decided to inform the public what Scheinman at the time advised that it was not necessary to state that Mr. Salinas and Saba owned the company that purchased the credit to Nortel.

In early 2004, the National Banking and Securities Commission of Mexico and the Securities and Exchange Commission of United States informed to TV Azteca the beginning of the inquiries about the information disclosure on the purchase of Nortel debt from Mr. Salinas and Saba. In February 2004, two stock exchange authorities began information requirements. Subsequently, the SEC began the interrogation to the Executives of TV Azteca.

In mid 2004 the SEC proposed a new bargain, now requesting $50 million, without undertaken court procedure. The offer was rejected. In January 2005 the SEC initiated a trial before in the Court of the District of Columbia, against TV Azteca, Ricardo Salinas, Pedro Padilla, Luis Echarte: the amount of the claim exceeded $140 million. The PGR also began a preliminary investigation against Ricardo Salinas and Pedro Padilla for alleged violations of the Securities Market Act.

Ricardo and Pedro Padilla reached a settlement with the SEC, which, without admitting any guilt, agreed to pay a total of $7.5 million, which would be distributed among the shareholders of TV Azteca who claimed to have been damaged. The class actions were completed in a similar way, by agreement to pay, without acknowledging any fault, $1.2 million. About the investigations conducted by the CNBC, some have already been declared invalid and that the dispute will probably continue to follow the same fate.

In addition, TV Azteca investors who had expectations of receiving shares of Unefon, received shares of Iusacell, a company with greater market penetration, which absorbed Unefon.

Unefon in December 2000 became a public company, giving $98 million by selling 176 million shares of Series A (7% of capital) in a successful primary bid in the Bolsa Mexicana de Valores. At that time, Mr. Moises Saba owned 46.5% of the company, TV Azteca 46.5% and the remaining 7% was traded from the public investing. Since September 2006, Grupo Salinas acquired 100% stake in Unefon.