In a dawn raid on Friday, Luxembourg judicial authorities searched for documents of two holding companies controlled by US hedge fund Elliott Management in relation to last year’s 1.2 billion euro sale of Italian football club AC Milan. Although it has formally closed, the sale is still contested by a third Luxembourg holding company, Blue Skye Financial Partners, which owned a small minority stake in AC Milan and which claims it has fallen victim to fraud under Luxembourg law.
Elliott Management last year sold AC Milan, Italy’s reigning champions, to RedBird Capital Partners, a Dallas, Texas-based sports and media investment firm that also owns sports franchises like Liverpool FC and the Boston Red Sox. RedBird acquired AC Milan also in a partnership with Yankee Global Enterprises, owner of the New York Yankees.
The sale is still challenged by Blue Skye, which owned a small minority stake and initiated legal action against Elliott in Milan, Luxembourg and New York because it felt cheated. Luxembourg police raids were conducted at the request of Milan’s public prosecutor, which was reacting to complaints by Blue Skye. A person familiar with the case said authorities in Milan and Luxembourg are seeking to corroborate claims by Blue Skye about the "opaque" management of AC Milan and dozens of questionable payments made, also to Luxembourg law firm Elvinger Hoss Prussen.
A federal judge in New York last July granted Blue Skye's motion filed after the sale of AC Milan and ordered Elliott to produce all documents, something which it has so far failed to do. Blue Skye, according to an Italian court document, said this "stubborn and unjustified resistance... confirms the petitioners' serious complexities about the entire transaction".
‘Fraud’
In Luxembourg, Blue Skye is arguing to a judge that the sale of AC Milan also was fraudulent because Elliott and Rossoneri pushed to close the transaction already in September, well before minority-owners - Blue Skye - were consulted. Blue Skye is understood to be seeking more than 100 million euro, according to a person familiar with the case.
Milan's prosecutor has opened up a European case and had asked Luxembourg's judicial authorities to investigate further. Friday's office raid was conducted in the presence of Luxembourg commissioner Vanessa Dieschburg and prompted by a 12 April order signed by Pascale Claude, investigative judge at the Luxembourg District Court, according to French sports newspaper l'Equipe reported.
Taken up as collateral
Elliott Management, a 55 billion dollar hedge fund based in Florida, and New York-based Arena investors, with assets of 4 billion dollars, ended up owning AC Milan by taking it up as collateral on a 300 million dollar loan to the club’s Chinese owner, who had acquired it from Silvio Berlusconi’s family in 2017.
The collateral related to the ownership of AC Milan’s through two Luxembourg holding companies, Project Redblack SARL and Rossoneri Sport Investment. At the request of Milan’s public prosecutor, Luxembourg’s police on Friday searched for documents from these two holding companies and evidence of payments. A Luxembourg business register filing dated 16 January shows that Project Redblack held 1.01 billion euro in assets as per June last year.
It is understood that Blue Skye so far has not been successful with its claims in two separate court hearings. Elliott has described the claims as “frivolous and vexatious” and as “as being no more than an attempt to extract value, to which BlueSkye is not entitled.” Blue Skye however is still involved in a number of cases against Elliott and Rossonero, including a hearing at Milan's bankruptcy court on 24 May.
Chinese owner defaulted
Public records in Luxembourg show that both Project RedBlack SARL and Rossoneri were created in 2017, when Berlusconi’s family, through Fininvest, sold AC Milan for 740 million euro to a Chinese owner. At the time it was the biggest Chinese investment in a football club in Europe. It also marked the end of Berlusconi’s 31-year ownership of the club.
Project RedBlack owns 100 percent of Rossoneri, which served as the bid vehicle for Chinese investor Li HongYong. Li funded a major part of his acquisition of AC Milan with a high-interest loan of approximately 300 million euro from Elliott Management. Li was however unable to make payments on this loan due to increasingly tight Chinese capital controls, which eventually led to a default.
The Financial Times, in July 2018, reported that those involved in the efforts to keep the club’s complex financial structure from collapse were not surprised to see Li default. “It was a battle between the meanest and savviest and most aggressive hedge fund in the world and a couple of Chinese guys whom no one had any idea where they came from,” the FT at the time cited a person involved in financing talks.
AC Milan is due to meet its city rivals Inter Milan during forthcoming Champions League semi-finals on 10 and 16 May.
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