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Chapter 9. Goosing, Stuffing, and Faking... > Red Flag 10: When Companies Provide ...

Red Flag 10: When Companies Provide Vendor Financing, It Can Backfire

When companies provide their customers with financing to buy their products, it can be a very risky business. If the customers get into trouble, they can default on their payments and suddenly the contract can turn into a nightmare. Even worse, the financing is sometimes not fully disclosed, leaving investors flat-footed when it becomes a problem. Take the example of wireless phone makers Motorola and Nokia, which lent the family that owns Turkey’s number two wireless operator, Telsim, more than $2.5 billion and at the time of writing were suing for their money back and alleging fraud under U.S. anti-racketeering laws. Motorola had to write off almost all its share of the loans less than a year after it had triumphantly announced a third-generation mobile phone network deal with Telsim. Motorola has received repayments of only $170 million of $2 billion in loans to Telsim. In December 2002, a British judge sentenced a member of Telsim’s controlling family, Turkish media baron Cem Uzan, to 15 months in prison in absentia for contempt of court after he failed to show up at hearings in which Motorola and Nokia had asked for a freeze on his assets. The Uzans deny the allegations from the telecom companies that they never intended to repay the loans and have been seeking arbitration of the matter in Switzerland.


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