Czech Billionaire Claims First Round in Fight With New York Fund

(Bloomberg) -- Czech property billionaire Radovan Vitek is claiming victory in the first round of a transatlantic legal fight with New York hedge fund Kingstown Capital Management, which alleges he engineered a $1 billion fraud scheme.

A Luxembourg court became the first to weigh in this month by dismissing Kingstown’s 2015 claim against Vitek’s CPI Property Group, the largest commercial property landlord in Berlin, saying in its ruling it wasn’t clear why the company should be “condemned” with the other defendants.

Kingstown “failed to demonstrate their claim of wrongdoing” against CPI, David Greenbaum, the company’s chief financial officer, said in a phone interview after the June 21 decision. It’s “a partial step to a complete victory," Greenbaum said. Kingstown’s lawyers beg to differ.

Although the preliminary decision spares CPI from the litigation, the claims survive, for now, against Vitek personally, as well as another key CPI entity and five other present and former board members. In April, an even bigger and potentially more-damaging lawsuit was filed in New York by Kingstown against CPI, accusing them of breaking U.S. racketeering laws.

“Any suggestion that this decision represents a victory for the defendants, or a decision on the merits of Kingstown’s claim, is absurd,” said Matthew Schwartz, Kingstown’s New York lawyer.

The divergent reactions to the Luxembourg verdict speak to the complexity of the case, which involves at least four countries and dates back to 2008. It also shows what’s at stake for Vitek, a property magnate who, according to the Bloomberg Billionaires Index, is worth about $2 billion.

Dalmatia, Swiss Alps

Vitek got his start in business importing blankets during the voucher privatization process in what was then post-communist Czechoslovakia before getting into the property business.

He built an empire of real-estate holdings across Central and Eastern Europe which includes a network of hotels on the exclusive Croatian island of Hvar and an upmarket ski resort in Switzerland that has been embroiled in an ongoing legal dispute.

He built an empire of real-estate holdings across Central and Eastern Europe, a network of hotels on the exclusive Croatian island of Hvar and an upmarket ski resort in Switzerland that have been the subject of ongoing legal disputes.

Vitek was sued in April in New York for more than $1 billion by Kingstown and Czech investment firm Investhold Ltd., which said they were ripped off by Vitek in a racketeering scheme dating back to 2008. They allege Vitek used a web of shell companies and “straw owners” to gain control of a Luxembourg-based real-estate development company Orco Property Group, in which Kingstown held a substantial interest. Vitek, they allege, then sold the most valuable assets at “distressed prices” to entities he secretly controlled.

Orco Property was one of the largest developers in the Czech Republic with assets elsewhere in Europe before it ran into trouble when the real-estate bubble burst during the global financial crisis. Then in late 2012, Vitek bought a 30% stake in Orco, before consolidating that stake and forcing through a revamp in 2014 that ousted Kingstown’s representatives from Orco’s board.

Kingstown first sued Vitek in 2015 in Luxembourg as that’s where Orco, a subsidiary of CPI Property Group, is registered. Orco has since been renamed CPI FIM. Lawyers for Vitek and Kingstown are set to meet again at the main commercial court in Luxembourg on July 3 when they aim to hash out how the dispute will be litigated in future.

CPI’s Greenbaum said last week’s dismissal of the case against his company is part of a “a long process,” but added, “we have a lot of liquidity and are prepared to see it out.”

Kingstown’s lawyer Schwartz, who previously worked as a U.S. attorney prosecuting convicted Wall Street fraudster Bernie Madoff, said Kingstown “looks forward to proving its claims at trial.”

--With assistance from Krystof Chamonikolas and Alex Sazonov.

To contact the reporters on this story: Stephanie Bodoni in Brussels at sbodoni@bloomberg.net;Hugo Miller in Geneva at hugomiller@bloomberg.net;Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman

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