UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF …...(4) defendants Balogh and Morvai violated...

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ELEK STRAUB, ANDRÁS BALOGH, and TAMÁS MORVAI, Defendants.

No. 11-Civ-9645 (RJS) PLAINTIFF U.S. SECURITIES & EXHANGE COMMISSION’S NOTICE OF MOTION FOR PARTIAL SUMMARY JUDGMENT

Pursuant to Federal Rule of Civil Procedure 56(a), plaintiff the United States

Securities and Exchange Commission (“SEC”) moves for partial summary judgment

against defendants Elek Straub, Andras Balogh, and Tamas Morvai. For the reasons stated

in the attached Memorandum, the Court should enter judgment as a matter of law that:

(1) the Court may exercise personal jurisdiction over the defendants;

(2) the SEC’s claims are not time-barred under 28 U.S.C. § 2462;

(3) the defendants made “use of the mails or any means or instrumentality of interstate commerce” with respect to the SEC’s claim under 15 U.S.C. § 78dd-1(a);

(4) defendants Balogh and Morvai violated SEC Rule 13b2-1 by falsifying the books, records, or accounts of Magyar Telekom; and

(5) defendants Straub and Balogh violated SEC Rule 13b2-2 by making materially false or misleading statements or omissions to Magyar Telekom’s auditor.

Pursuant to Local Rule 56.1, attached hereto is the SEC’s Statement of Material

Undisputed Facts.

Case 1:11-cv-09645-RJS Document 220 Filed 10/05/15 of 2

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Dated: October 5, 2015 Respectfully submitted,

__/s/ Robert I. Dodge__________

Robert I. Dodge (RD 0433) Thomas A. Bednar John D. Worland, Jr. Adam J. Eisner U.S. Securities & Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-5949 (202) 551-4421 (Dodge) [email protected] Attorneys for Plaintiff

CERTIFICATE OF SERVICE

I certify that on October 5, 2015, a copy of the foregoing document was served upon all counsel of record via the Court’s electronic filing system, which sends notification to the following parties:

Robert B. Buehler ([email protected]) Carl Rauh ([email protected]) Lisa J. Fried ([email protected]) Counsel for defendant Elek Straub William Sullivan ([email protected]) Kristen Baker ([email protected]) Counsel for defendant András Balogh Michael L. Koenig ([email protected]) Victoria Lane ([email protected]) Counsel for defendant Tamás Morvai

____/s/ Robert I. Dodge______

Case 1:11-cv-09645-RJS Document 220 Filed 10/05/15 of 2

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ELEK STRAUB, ANDRÁS BALOGH, and TAMÁS MORVAI, Defendants.

No. 11-CV-9645 (RJS) PLAINTIFF’S RULE 56.1 STATEMENT OF MATERIAL UNDISPUTED FACTS

Pursuant to Local Civil Rule 56.1, plaintiff the United States Securities and Exchange

Commission (“SEC”) asserts that the following represent facts material to the resolution of

plaintiff’s Motion for Summary Judgment, and that there is no genuine dispute as to these facts.1

Background 1. Magyar Telekom was named Magyar Távközlési Rt. and operated under the commercial

name Matáv from approximately December 1991 through May 2005. On May 6, 2005, Magyar Távközlési Rt. was rebranded Magyar Telekom Távközlési Rt and its commercial name became Magyar Telekom Ltd. Magyar Telekom 2005 Form 20-F at 9 (available on SEC’s EDGAR website).

2. Elek Straub was Chairman and Chief Executive Officer (“CEO”) of Magyar Telekom

from July 1995 until on or about December 5, 2006. Balogh Answer (Dkt. 218) ¶¶1, 9; Straub Answer (Dkt. 217) ¶9.

1 Exhibit citations are to the exhibits attached to the Declaration of Robert I. Dodge in support of the SEC’s motion for summary judgment. In an effort to remain in compliance with Rule 2.H of the Court’s Individual Practices, this Rule 56.1 statement includes citations to materials that are not attached to the Dodge Declaration. All cited materials have either been produced to all parties in discovery or, in the case of SEC filings, are readily available from public sources. Citations to deposition testimony are noted as follows: “Buckovski 2/7/14 tr. 14.” Citations to deposition exhibits are noted as “Deposition Ex.”

Case 1:11-cv-09645-RJS Document 220-1 Filed 10/05/15 Page 1 of 19

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3. Andras Balogh was a senior executive of Magyar Telekom as the Director of Central Strategic Organization (also known as the Strategy Department) from April 2002 until August 8, 2006. Balogh Answer ¶¶1, 10.

4. Tamas Morvai was a senior executive in the Central Strategic Organization of Magyar

Telekom (also known as the Strategy Department) as the Director of Business Development and Acquisitions from July 2004 until July 10, 2006. Morvai Answer (Dkt. 219) ¶11; Balogh Answer ¶¶1, 11.

5. Makedonski Telekommunikacii A.D. Skopje (“MakTel”) was the former state-owned

telecommunications services provider in Macedonia. Morvai Answer ¶14; Balogh Answer ¶14; Straub Answer ¶14.

6. From late 2004 until the summer of 2006, Magyar Telekom owned a 51% stake in

MakTel. Morvai Answer ¶14; Balogh Answer ¶14; Straub Answer ¶14. 7. Between 2004 and 2006, the Macedonian government retained a substantial ownership

stake in MakTel. Morvai Answer ¶14; Balogh Answer ¶14. 8. Vlado Buckovski, a member of the SDSM (Social Democratic Union of Macedonia)

Party, was the Prime Minister of Macedonia from December 15, 2004 until August 27, 2006. Buckovski 2/7/14 tr. 14.

9. In 2004 and 2005, Xhemali Mehazi of the DUI (Democratic Union for Integration) Party

served in Buckovski’s cabinet, as the Minister of Transport and Communications. Buckovski 2/7/14 tr. at 41; Expert Report of Keith Brown at ¶60.

Magyar Telekom’s SEC Filings & Management Representations 10. Between 2004 and 2006, the securities of Magyar Telekom were publicly traded in the

United States through American Depository Receipts (ADRs) listed on the New York Stock Exchange. Morvai Answer ¶¶8, 12, 13; Balogh Answer ¶¶8, 12; Straub Answer ¶¶8, 12.

11. Between 2004 and 2006, Magyar Telekom was an issuer of securities in the United

States. Morvai Answer ¶¶8, 12, 13; Balogh Answer ¶12; Straub Answer ¶¶8, 12. 12. Between 2004 and 2006, Magyar Telekom filed reports on Form 20-F with the SEC.

Morvai Answer ¶¶8, 12, 13; Straub Answer ¶8. 13. In filing its reports on Form 20-F with the SEC, Magyar Telekom filed consolidated

financial statements which included the financial statements of MakTel. Magyar Telekom 2005 Form 20-F at 8.

14. In order to file its required annual Form 20-F with the SEC, Magyar Telekom was

required to submit audited financial statements. Expert Report of Donna Levy at ¶38.


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15. In 2005 and 2006, Magyar Telekom’s auditor was PricewaterhouseCoopers (hereinafter, “PwC”). Kos 5/28/14 tr. 16-17.

16. In order to provide an audit opinion, PwC required that Magyar Telekom submit a

management representation letter, normally signed by the CEO and Chief Financial Officer (“CFO”). Kos 5/28/14 tr. 24-25.

Management Representations by Elek Straub

17. On or about January 17, 2005, Elek Straub and Magyar Telekom’s CFO signed a

management representation letter to PwC with respect to Magyar Telekom’s consolidated financial statements for the year ending December 31, 2004. The letter made the following representations as of January 14, 2005:

a. All . . . financial and accounting records and related data have been made

available to you. We are not aware of any accounts, transactions, or material agreements not fairly described and properly recorded in the financial and accounting records underlying the financial statements.

b. We are not aware of any violations or possible violations of laws or

regulations the effects of which should be considered for disclosure in financial statements . . . .

c. There are no significant deficiencies . . . in the design or operation of

internal controls over financial reporting . . . . d. We have no knowledge of any fraud or suspected fraud affecting the

company involving . . . management [or] employees who have significant roles in internal control over financial reporting . . . .

e. We have disclosed to you all significant facts relating to any frauds or

suspected frauds known to us that may have affected the Company.

Ex. 10; MT-PWC-REPS-00104, et seq. (management representation letter).

18. On or about January 21, 2005, Elek Straub and Magyar Telekom’s CFO signed a management representation letter addressed to PwC confirming, for purposes of PwC’s audit, that the 2004 consolidated financial statements presented for Magyar Telekom and its subsidiaries remained correct, with certain changes. The letter represented that no events had occurred up to January 21, 2005, that would require adjustment of the company’s financial statements or which would be likely to cause any material change in the company’s financial position or results. MTREPS-000127, et seq. (management representation letter)

19. On or about February 11, 2005, Elek Straub and Magyar Telekom’s CFO signed a

management representation letter addressed to PwC. The letter affirmed the contents of management representation letters dated January 14, 21, and 28, 2005, and asserted that


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the 2004 financial statements remained correct, with certain changes. The letter further stated that no events had occurred as of February 11, 2005 that would require adjustment of the company’s financial statements or which would be likely to cause any material change in the company’s financial position or results. MTREPS-000131 et seq.

20. On or about February 28, 2005, Elek Straub and Magyar Telekom’s CFO signed a

management representation letter addressed to PwC. The letter stated that the company’s prior representations letters remained correct and that no events had occurred up to February 28, 2005, that would require adjustment of the company’s financial statements or which would be likely to cause any material change in the company’s financial position or results. MTREPS-000132, et seq. (management representation letter).

21. On or about April 15, 2005, Elek Straub either signed or authorized to be sent a

management representation letter addressed to PwC and bearing a signature line for him. The letter applied to Magyar Telekom’s consolidated financial statements for the first quarter of 2005, and stated that as of April 15, 2005:

a. We have made available to you . . . All . . . financial records and related

data. b. There are no significant deficiencies . . . in the design or operation of

internal control over financial reporting . . . . c. We have no knowledge of any fraud or suspected fraud affecting the

company involving . . . [m]anagement [or] [e]mployees who have significant roles in internal control over financial reporting . . . .

d. We have no knowledge of any allegations of fraud or suspected fraud

affecting the company . . . .

MTREPS-000133, et seq. (management representation letter).

22. On or about April 27, 2005, Elek Straub and Magyar Telekom’s CFO signed a “Letter of Representation Update” to PwC, updating certain information in previous management representation letters. The letter stated that “to the best of our knowledge and belief . . . there have been no developments since 28 February, 2005 that would materially affect the financial statements for the year ended December 31, 2004.” The letter also stated that “there are no material events which have occurred, in our opinion, which should be disclosed in order to keep those statements from being misleading.” MTREPS-000138-000139 (letter of representation update).

23. On or about May 11, 2005, Elek Straub and Magyar Telekom’s CFO signed a

management representation letter to PwC “in connection with the issuance of your audit report on the consolidated financial statements” for 2004 that were “included in the Form 20-F” of Magyar Telekom and its subsidiaries, “to be filed with the SEC.” The letter went on to “confirm” that the Form 20-F “is in full conformity with the requirement of


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the Securities and Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and any applicable SEC guidance.” The letter also made the following representations:

a. [W]e have maintained a system of internal controls designed to provide

reasonable assurance that assets are protected and transactions are executed in accordance with management’s authorization. We are aware that we are responsible for establishing and maintain an internal control structure, the objectives of which are to provide reasonable, but not absolute, assurance that . . . transactions are executed as authorized, and recorded properly to permit the preparation of the financial statements.

b. There has been no fraud . . . involving management or employees who

have significant roles in internal control. There has been no fraud . . . involving other employees that could have a material effect on the financial statements.

Ex. 10; MTREPS-000140-000141 (management representation letter).

24. On or about May 11, 2005, Elek Straub either signed or authorized the filing of a certification by him appended to Magyar Telekom’s Form 20-F filed with the SEC. The certification stated:

a. I, Elek Straub, hereby certify that: b. Based on my knowledge, this [annual] report [on Form 20-F] does not

contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made . . . not misleading . . .

c. Based on my knowledge, the financial statements . . . fairly present in all

material respects the financial condition . . . of the Company . . . d. The Company’s [CFO] and I are responsible for establishing and

maintaining disclosure controls and procedures . . . and have . . . [d]esigned such disclosure controls . . .

e. The Company’s [CFO] and I have disclosed . . . to the Company’s auditors

and the audit committee . . . [a]ny fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Ex. 13 (Ex. 12.1 to Form 20-F, Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).

25. On or about May 11, 2005, Elek Straub either signed or authorized the filing of a

certification by him appended to Magyar Telekom’s Form 20-F filed with the SEC. The certification stated:


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I, Elek Straub, certify that the Form 20-F fully complies with the requirements of Section 13(a) or Section 15(d) of the U.S. Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Ex. 13 (Exhibit 13.1 to Form 20-F, Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).

26. On or about July 19, 2005, Elek Straub and Magyar Telekom’s CFO signed a management representation letter to PwC, confirming that the financial statements of Magyar Telekom and its subsidiaries for the second quarter of 2005 were “fairly presented” in accordance with applicable accounting standards. The letter stated:

a. We have made available to you . . . [a]ll financial records and related data. b. We have no knowledge of any fraud or suspected fraud affecting the

company involving . . . [m]anagement . . . [e]mployees who have significant roles in internal control over financial reporting; or . . . [o]thers where the fraud could have a material effect on the interim financial information.

c. We have no knowledge of any allegations of fraud or suspected fraud

affecting the company . . .

The letter also reported on a contingent liability in Macedonia, in which a competitor sued MakTel for 2.1 million Euro alleging anti-monopoly violations.

MT-PWC-REPS-00134-00140 (management representation letter). 27. On or about October 17, 2005, Elek Straub and Magyar Telekom’s CFO signed a

management representation letter to PwC regarding the company’s financial statements for the third quarter of 2005. The letter asserted that the “interim consolidated financial statements . . . are fairly presented in conformity” with applicable accounting standards. The letter represented that “[w]e are aware of potential conflict of interest issue, regarding contracted with related parties involving senior management of Mobimak, which is still under investigation,” and “[t]o the best of our knowledge, there has been no material effect on the interim financial information.” The letter further represented:

a. We have made available to you . ..[a]ll financial records and related data. b. We have no knowledge of any other fraud or suspected fraud affecting the

company involving . . . [m]anagement . . .[e]mployees who have significant roles in internal control over financial reporting; or . . . [o]thers where the fraud could have a material effect on the interim financial information.


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c. We have no knowledge of any allegations of fraud or suspected fraud affecting the company . . .

d. We have reviewed our representation letter to you dated January 14, 2005,

with respect to the audited financial statements for the year ended December 31, 2004. We now confirm that those representations, to the agree appropriate, apply to the interim consolidated financial statements . . . and incorporate them herein . . . .

Ex. 10; MT-WC-REPS-00141-00148 (management representation letter).

28. On or about November 7, 2005, Elek Straub and Magyar Telekom’s CFO signed a letter

to PwC, stating that certain financial statements of Magyar Telekom for the year 2004 and the first three quarters of 2005 remained correct and that they were not aware of any events that would require adjustment of those financial statements. MTREPS-000157-000164 (letter).

29. On or about January 13, 2006, Elek Straub either signed, or authorized to be sent, a

management representation letter to PwC on behalf of Magyar Telekom. The 15-page letter stated that management “believe[s] that” Magyar Telekom’s financial statements and the 20-F annual report “present fairly, in all material respects, the financial position and results of operations of the Company . . . .” The letter stated:

a. Solely for the purpose of preparing this letter, the term ‘material’, means

any items referred to, either individually or collectively in the aggregate, involving potential amounts normally greater than MHUF 500 million.

b. . . . all financial and accounting records and related data have been made

available to you. We are not aware of any accounts, transactions or material agreements not fairly described and properly recorded in the financial and accounting records underlying the financial statements.

c. We are not aware of any violations or possible violations of laws or

regulations the effects of which should be considered for disclosure in the financial statements . . .”

d. We acknowledge our responsibility for the design and implementation of

programs and controls to prevent and detect fraud. e. We have no knowledge of any fraud or suspected fraud affecting the

company involving . . .[m]anagement . . .[e]mployees who have significant roles in internal control over financial reporting; or . . .[o]thers where the fraud could have a material effect on the financial information.

f. We have disclosed to you all significant facts relating to any frauds or

suspected frauds known to us that may have affected the Company.


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g. The financial statements are free of material misstatements, including omissions.

The letter also reported on the rebranding of various Magyar Telekom companies in Hungary, as well as the acquisition of a license to provide certain telecommunications services in Hungary. Id. at 3. The letter reported on the outcome of litigation with a competitor in Macedonia, resulting in the payment by Maktel of 0.9 million Euro. Id. at 11. MTREPS-000165-000179 (management representation letter).

Representations and Sub-Certifications by Andras Balogh

30. On April 11, 2005, Andras Balogh received an email from the Director of Accounting at

Magyar Telekom, which included a draft management representation letter for the period ended March 31, 2005. SEC-HFSA-E-0021091, et seq. (email and attachment).

31. In response to the April 11, 2005 email he received, Andras Balogh sent an April 13,

2005 email, stating: “All material information relating to my area of responsibility was disclosed accurately and in full (actuals and accruals) an in agreement with the subject matter of the Management Representation Letter for the period ended March 31, 2005.” MT-DOJ007-000494-T, et seq. (email from Balogh).

32. On or about April 15, 2005, Andras Balogh signed a “Certification” on behalf of the

Strategy Department, stating that the section he provided for Magyar Telekom’s “20F report to be filed with the United States Securities and Exchange Commission (SEC) presents the true and fair information and it is free of material misstatements, including omissions.” Ex. 14.

33. The disclosures in the portion of the draft 20-F report to which Balogh certified on or

about April 15, 2005 included a discussion of the planned rebranding of Magyar Telekom’s Hungarian operation to incorporate Deutsche Telekom’s “T-Brand,” as well as the planned expenditures associated with re-branding. Ex. 14.

34. On April 25, 2005 Andras Balogh received an email from the Magyar Telekom

Accounting Department requesting a certification as part of a “Letter of Representation Update” to Magyar Telekom’s auditor. The April 25 request attached a copy of the draft Letter of Representation Update. SEC-HFSA-E-0023145 et seq. (email and attachment).

35. In response to the April 25, 2005 request, Andras Balogh sent a reply email on April 27,

2005 stating:

Mr. Andras Balogh, Chief Strategist hereby declares that As of April 27, 2005, there are no reportable post balance sheet events

related to my area of responsibility, i.e. no material events occurring after December 31, 2014, having a material impact on my company’s financial position.


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SEC-HFSA-E-0023698 (email from Balogh). 36. On May 6, 2005, Andras Balogh received an email from Magyar Telekom’s Accounting

Department entitled “Urgent: Management Representation Letter for 20F 2004.” The May 6 email requested that Balogh and other managers certify the continued accuracy of the Form 20-F to be filed by Magyar Telekom with the SEC. The email attached a draft management representation letter to PwC, as of May 11, 2005. The attached draft management representation letter, prepared for Elek Straub’s signature, stated:

a. We confirm, to the best of our knowledge and belief, as of May 11, 2005,

. . . the following representations made to you: b. The Form 20-F is in full conformity with the requirements of the

Securities and Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and any applicable SEC guidance.

c. There has been no fraud during any of the periods involving management

or employees who have significant roles in internal control. SEC-HFSA-E-0025634, et seq. (email and attachment). 37. In response to the May 6 request, Andras Balogh sent an email on May 9, 2005 with the

following certification:

a. Balogh András központi stratégiai igazgató az alábbiakban "Tanúsitom, hogy a Teljességi Nyilatkozat legfrissebb verziójának tartalma helytálló és teljeskörü."

b. The English translation of Balogh’s certification is: “Andras Balogh, Director of Central Strategy Director, states ‘I testify to

the subject matter contained in the Letter of Representation Update.’” SEC-HFSA-E-0025811(email from Balogh and translation). 38. On June 22, 2005, Balogh received a request from Peter Gencsy “requesting you to report

any fraud or any suspicion thereof” by June 29. The June 22 email stated:

a. The Sarbanes-Oxley (SOX) Act entered into force in the United States in July 2002 with the objective to increase investors’ confidence towards financial data shown in the financial reports.

b. . . . regular and quarterly registration of fraud events has become

necessary.” c. As specified by the Act, the following shall be regarded as fraud . . . acts

committed against the public and corporate interest to generate private


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profit, acceptance of preferences / incentives for the non-regular performance of tasks and the misappropriation of other’s property.”

d. Fraud shall also include . . . deception, extortion, forgery, coercion, corruption, theft, conspiracy, misappropriation, mismanagement, fraudulent distortion and concealment of facts, and collusion.

MT-LON 0015620-T, et seq. (email). 39. On June 28, 2005, through his assistant Imre Gellai, Andras Balogh responded to the

June 22, 2005 request. The response stated that for “the area of the Central Strategic there were no fraud events.” Ex. 14 (email from Balogh).

40. On or about July 14, 2005 Andras Balogh received an email from Magyar Telekom’s

Accounting Department requesting a sub-certification in connection with Magyar Telekom’s management representation letter for the second quarter of 2005. SEC-HFSA-E-0037970 (email).

41. On July 18, 2005, Andras Balogh, through his assistant Imre Gellai, sent an email to

Magyar Telekom’s Accounting Department in which he certified that, after one modification related to Magyar Telekom’s Montenegrin acquisition, “All material information relating to my area of responsibility was disclosed accurately and in full (actuals and accruals) and in agreement with the subject matter of the Management Representation Letter for the period ended Jun[e] 30, 2005.” MT-DOJ009-000316 (email from Balogh).

42. On or about October 13, 2005, Andras Balogh received an email from Magyar Telekom’s

Accounting Department requesting a certification for Magyar Telekom’s Management Representation Letter for the third quarter of 2005. SEC-HFSA-E-0062250, et seq. (email).

43. On October 14, 2005, Andras Balogh, through his assistant, sent an email stating, “I

declare that All material information relating to my area of responsibility was disclosed accurately and in full (actuals and accruals) and in agreement with the subject matter of the Management Representation Letter for the period ended Sept 30, 2005.” Ex. 11 (email from Balogh).

44. On November 25, 2005, Andras Balogh received a draft of two sections (“Risk Factors”

and “Strategy”) of Magyar Telekom’s Form 20-F report for 2005 with a request “to update” the drafts. SEC-HFSA-E-0071538, SEC-HFSA-E-0071553 (email and attachments).

45. On January 12, 2006, Balogh received by email a copy Magyar Telekom’s draft

management representation letter for the fourth quarter of 2005. SEC-HFSA-E-0082540 (email and attachment).

46. On January 13, 2006, in an email sent by his assistant, Andras Balogh wrote: “Andras

Balogh, the Chief Strategist of Magyar Telekom Rt. hereby declare[s] that all material


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information relating to my area of responsibility was disclosed accurately and fully (actuals and accruals) and in agreement with the subject matter of the Management Representation Letter for the period ended Dec 31, 2005.” MT-DOJ007-000863, et seq. (email from Balogh).

47. On January 13, 2006, Andras Balogh sent an email to the head of Magyar Telekom’s

Accounting Department, with Tamas Morvai copied, with a correction for Magyar Telekom’s management representation letter relating to MakTel’s internet business. Ex. 11 (email from Balogh and attachment).

48. On February 7, 2006, Andras Balogh received by email a copy of Magyar Telekom’s

January 13, 2006, management representation letter with a request to certify that “as of February 9, 2006, there are no reportable ‘post balance sheet events’ related to my area of responsibility, i.e., no material events occurring after December 31, 2005, having a material impact on my company’s financial position.” MT-DOJ009-000546 (email and attachment).

49. On February 8, 2006, through his assistant Balogh emailed that he “hereby declare[s]

that as of February 9, 2006, there are no reportable ‘post balance sheet events’ related to my area of responsibility, i.e. no material events occurring after December 31, 2005, having a material impact on my company’s financial position.” MT-DOJ009-000564 (email from Balogh).

50. On April 11, 2006, Andras Balogh signed a certification in connection with the

preparation of Magyar Telekom’s Form 20-F report for 2005. The certification stated: “I confirm, to the best of my knowlege and belief, that the section I provided for the 20F report to be filed with the United States Securities and Exchange Commission (SEC) presents the true and fair information and it is free of material misstatements, including omissions.” Ex. 14. Attached to Balogh’s certification is the relevant section of the Form 20-F, which included discussion of certain risks in Macedonia, such as regulatory risk. Id. (email from Balogh and attachment).

Representations and Sub-Certifications by Tamas Morvai

51. On October 14, 2004, Tamas Morvai responded to an email from Magyar Telekom’s

Zoltan Kovacs about the preparation of Magyar Telekom’s management representation letter for the third quarter of 2004. Kovacs requested information from Morvai about the Macedonian company Stonebridge, and Morvai referred Kovacs to a press release for the information. Morvai Dep. Ex. 197, MT-DOJ009-000570.

52. On January 13, 2005, Tamas Morvai responded by email to a January 12, 2005 email

from the Magyar Telekom Accounting Department regarding the attached draft of Magyar Telekom’s management representation letter for the fourth quarter of 2004. Morvai responded: "Nekem jó, azt kellene még megkérdezni tőlük, hogy megkapták e a peres ügyek listáját Makedóniából.” The English translation of his response is: “Good for me, they should ask if they received a list of court cases from Macedonia.” MT-DOJ009-000848 et seq. (email from Morvai).


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53. On April 13, 2005, Tamas Morvai sent an email to Imre Gellai with the following

certification relating to Magyar Telekom’s management representation letter for the first quarter of 2005: “All material information relating to my area of responsibility was disclosed accurately and in full (actuals and accruals) and in agreement with the subject matter of the Management Representation Letter for the period ended March 31, 2005.” A draft of the representation letter was attached to Morvai’s email. Ex. 12.

54. On October 13, 2005, Tamas Morvai sent an email to Monika Bacsvary with respect to

Magyar Telekom’s management representation letter for the second quarter of 2005. Morvai’s email attached the draft management representation letter and stated, “My part is OK.” MT-DOJ009-000745 (email from Morvai).

55. On January 12, 2006, Tamas Morvai received an email from Monika Bacsvary attaching

a draft of Magyar Telekom’s January 13, 2006 management representation letter for the period ending December 31, 2005. Ms. Bacsvary asked, “Please inform Andras whether you find the report correct.” Morvai responded the same day, stating: “As far as I know, the On.net lawsuit mentioned under section 36 was closed through out-of-court settlement. Maktel knows the details.” Ex. 12 (email from Morvai).

56. On January 13, 2006, Ms. Bacsvary sent an email on behalf of Andras Balogh to Magyar

Telekom’s Accounting Department, with a copy to Tamas Morvai. The email message stated: “There is one correction we would like to make to point 36, [referring] to MakTel’s ON.net case. The email message attached a copy of the draft January 13, 2006, management representation letter with proposed changed language. Ex. 12.

Protocol of Cooperation

57. On or about May 27, 2005, Andras Balogh, acting on behalf of Elek Straub, signed an

agreement titled Protocol of Cooperation. The document was also signed by Macedonian Prime Minister Vlado Buckovksi. Ex. 1; Straub 7/31/14 tr. 156; Balogh 7/28/14 tr. 78-81, 83.

58. In or about late May 2005, Elek Straub signed an agreement titled Protocol of

Cooperation. The document was also signed by Macedonian Minister of Transportation and Communications Xhemali Mehazi. Ex. 1; Straub 7/31/14 tr. 165-67.

59. The document in Ex. 1 at bates numbers GREEK-MLAT-000007-8 is a true and accurate

copy of the Protocol of Cooperation signed by Andras Balogh, acting on behalf of Elek Straub, and Macedonian Prime Minister Vlado Buckovski. Balogh 7/28/14 tr. 78; Straub 7/31/14 tr. 126.

60. The document in Ex. 1 at bates numbers GREEK-MLAT-000009-10 is a true and accurate

copy of the Protocol of Cooperation signed by Elek Straub and Macedonian Minister of Transport and Communications Xhemali Mehazi. Straub 7/31/14 tr. 165.


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61. With respect to the provisions of the Protocol of Cooperation, Elek Straub testified that “neither party should accept that the other one is doing steps without the other also realizing what is promised.” Straub 7/31/14 tr. 193.

62. On or about June 6, 2008, Andras Balogh forwarded an email message to Elek Straub

attaching what Balogh described as “the first quick and dirty calculation of the impact of the Protocol of Cooperation on the MakTel business plan.” Balogh’s email message attached the chart entitled “Numerical presentation of the benefits of the agreement” (“A megállapodás előnyeinek számszerűsítése”) (MT-MAK 1051984). Ex. 6.

63. Following the signing of the Protocol of Cooperation, MakTel voted to approve, and

subequently paid, a dividend of €95 million for fiscal year 2004, approximately half of which was paid to the Government of Macedonia as a shareholder of MakTel. 5/30/05 MakTel Board Minutes.

64. Following the signing of the Protocol of Cooperation, the Government of Macedonia

submitted revised invoices to Mobimak for the 2004 and 2005 frequency fees consistent with the terms of the Protocol. MT-MAK 1049250-53 (invoices).

65. Magyar Telekom did not disclose the existence of the Protocol of Cooperation to its

auditor. Kos 5/28/14 tr. 63-64. 66. Elek Straub did not disclose the existence of the Protocol of Cooperation to Magyar

Telekom’s auditor. Kos 5/28/14 tr. 63-64. 67. Andras Balogh did not disclose the existence of the Protocol of Cooperation to Magyar

Telekom’s auditor. Kos 5/28/14 tr. 63-64. 68. Neither Balogh nor Straub, nor anyone else, retained a signed copy of the Protocol of

Cooperation in Magyar Telekom’s records. Balogh 7/28/14 tr. 81-85; Straub 7/31/14 tr. 156-59.

69. The only signed copies of the Protocol of Cooperation retained for Magyar Telekom were

held by Dimitris Contaminas. Straub 7/31/14 tr. 156-57, 163; Balogh 7/28/14 tr. 81-82, 87.

70. On or about May 31, 2005, Daniela Backes, on behalf of Michael Gunther, sent an email

to Elek Straub requesting “a copy of the signed version” of the Protocol of Cooperation. On or about June 7, 2005, Ms. Backes’ request was forwarded to Andras Balogh. On or about June 14, 2005, Balogh sent an unsigned version of the Protocol of Cooperation to Ms. Backes. On or about June 22, 2005, Ms. Backes, on behalf of Mr. Gunther, again “requested a copy of the signed version of the contract.” Balogh wrote in response that he “would like to inform Mr. Gunther over the phone about the circumstances on how to receive it.” Later that day, Ms. Backes wrote to Balogh that Mr. Gunther “was informed by Mr. Straub about the special circumstances.” Ex. 7.


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71. Elek Straub spoke to Mr. Gunther on or about June 22, 2005 to discuss the fact that no signed version of the Protocol of Cooperation was retained in the files of Magyar Telekom. Ex. 7.

72. Nick Kos, Magyar Telekom’s auditor at PwC, testified that the Protocols of Cooperation

were “absolutely” the type of documents that should have been maintained in Magyar Telekom’s books and records, because “[t]here are certain elements to these contracts which may have a financial impact. Some of the numbers in here are quite substantial” and “also may have an accounting impact, for example, on the financial statement, may require certain treatment.” Kos. 5/28/14 at 65, 68. Kos further testified that the protocols “should have been provided to us in the normal course of the audit.” Id. at 77.

73. Magyar Telekom’s auditor testified that “theoretically, if you . . . go through the letter, in

paragraph 1, there’s a commitment potentially to – to a network build, which may be a capital commitment which may need to be disclosed in the financial statements.” Kos. 5/28/14 tr. at 66. Kos also testified that Paragraph 1 of the Protocol contained “an agreement with the government around licensing in the future, which may also need to be disclosed, because it gives potential advantages to the company. . . .” Id. at 66.

74. Magyar Telekom’s auditor testified that the second paragraph of the Protocol “refers to a

guaranteed dividend” which “would need to be evaluated, whether that should be shown within the financial statements.” Kos. 5/28/14 tr. at 66.

75. Magyar Telekom’s auditor testified that the third paragraph of the Protocol “appears to

dictate the frequency fee payments for certain periods of time” which “would need to be evaluated in terms of the financial statements.” Kos. 5/28/14 tr. at 66-67.

76. Magyar Telekom’s auditor testified that the sixth paragraph of the Protocol was “a

significant agreement” “with a major partner and customer” and he was “not sure” how that would affect the financial statements. Kos. 5/28/14 tr. at 67.

77. Magyar Telekom’s auditor testified that the first bullet point in the seventh paragraph of

the Protocol, dealing with the frequency fee, “may materially affect the accounting treatment” of the frequency fee, for instance if it had been treated as a contingent liability. Kos. 5/28/14 tr. at 67.

78. Magyar Telekom’s auditor testified that the second bullet point in the seventh paragraph

of the Protocol, which stated that the MakTel Group was “planning further investments in the country,” “may relate to capital commitment type of disclosure.” Kos. 5/28/14 tr. at 67.

79. Magyar Telekom’s auditor Nick Kos testified that the existence of the Protocols of

Cooperation “may have an impact on” Magyar Telekom’s management representation letters, specifically the letters signed by Elek Straub on or about July 19, 2005, and on or about October 17, 2005. Kos. 5/28/14 tr. at 75-76.


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80. Nick Kos testified that the existence of the Protocols of Cooperation affected his assessment of the reliability of the 7/19/05 and 10/17/05 management representation letters. Kos. 5/28/14 tr. at 79. He testified that the truth of the statements in the management representation letters that the consolidated financial statements were “fairly presented in conformity with IFRS,” “may be impacted by the protocols.” Kos. 5/28/14 tr. at 77.

81. Nick Kos testified that the truth of the statement that Magyar Telekom had “made

available” “all financial records and related data” was impacted by the fact that the protocols were “not provided to” PwC. Kos. 5/28/14 tr. at 77

82. Nick Kos testified that the management representation letters certified that there were no

deficiencies in Magyar Telekom’s internal controls, and that the truth of this statement was impacted by the fact that the protocols were not provided to Magyar Telekom’s finance department, and “therefore I think the conclusion is there was a deficiency in the controls which allowed those documents to bypass the normal processes . . . of financial statements preparation.” Kos. 5/28/14 tr. at 77-78.

Chaptex Contracts

83. In early July 2005, a Magyar Telekom in-house lawyer named Zsolt Herczegh began

drafting a “consultancy” contract with Chaptex Holdings. Herczegh 2/12/14 tr. 29-46, 53-55.

84. Andras Balogh provided Herczegh with contract terms to be included in the consultancy

contract and instructions on the drafting of the contract . Herczegh 2/12/14 tr. 27-29, 34-37, 51, 53-55.

85. Andras Balogh discussed the drafting of the consultancy contract with Herczegh.

Herczegh 2/12/14 tr. 30, 32, 35, 38-39, 43. 86. On or about July 7, 2005, Herczegh emailed a draft of the “consultancy agreement”

“concerning frequency fee related activities” to Andras Balogh. In the email transmitting the draft of the success-fee contract, Herczegh stated that he had inserted June 30 as the “deadline for the fulfilment of the Consultant’s obligations” because “fulfilment can be evidenced by” by specific events that had already occurred by that date. Herczegh also wrote that “the signing date must be carefully selected since the performance deadline is 30th June.” Deposition Ex. 43.

87. Balogh forwarded the Herczegh email to Michael Kefaloyannis, an officer at Chaptex.

Deposition Ex. 43. 88. On or about July 11, 2005, Herczegh emailed Balogh and asked if the frequency fee

contract had been signed. On July 12, 2005, Balogh responded that “the agreement was signed” and instructed Herczegh to “please start preparing the other agreements.” Deposition Ex. 46 (email exchange between Herczegh and Balogh).


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89. The executed frequency fee contract between MakTel and Chaptex Holdings bore a date of May 1, 2005 on the front page and stated on the signature page that “the authorized representatives of the Parties hereto have set their hand on May 1, 2005.” Deposition Ex. 45 (contract).

90. Herczegh began drafting the next Chaptex contracts, concerning “Macedonian Law on

Electronic Communication and its by-laws” and “labour law related activities” on or after July 12, 2005 and completed the drafting in August 2005. Ex 8; Herczegh 2/12/14 tr. 84-94.

91. On or about August 30, 2005, Balogh and Morvai received an email message from

Ferenc Vaczlavik regarding “the two planned Chaptex agreements.” Vaczlavik wrote that he had been informed “that according to your agreement” the contracts “should be concluded via Telemacedonia, because the direct Maktel connection would attract too much attention.” Vaczlavik’s email discussed certain implications of using Telemacedonia as the contracting party. Vaczlavik proposed that “a consultancy agreement between Stonebridge and Chaptex is also a possible solution” and “could represent the smallest potential source for conflict.” Ex. 8 at 2.

92. Vaczlavik’s suggestion to use Stonebridge was accepted, and on or about August 31,

2005, the Chaptex contracts concerning “Macedonian Law on Electronic Communication and its by-laws” and “labour law related activities” were revised to name Stonebridge, rather than MakTel, as the contracting party. Herczegh 2/12/14 tr. 113-15.

93. Andras Balogh and Tamas Morvai signed a letter authorizing the Magyar Telekom in-

house lawyer Zoltan Kisjuhasz, who held the title General Director of Stonebridge, to perform “all necessary steps . . . in view of signing a new consultancy agreement by Stonebridge Communications AD with Chaptex Holdings Ltd as assigned consultant for consultancy services to be performed for the MakTel Group under the conditions of success-based fees . . . .” Ex. 9. The date May 31, 2005 was typed on to the letter. Id.

94. On August 31, 2005, Magyar Telekom attorney Zsolt Herczegh sent an email to Michael

Kefaloyannis of Chaptex Holdings, copying Andras Balogh, Tamas Morvai, and others. Herczegh attached “the modified consultancy agreements to be concluded between StoneBridge AD (instead of MakTel) and Chaptex Holdings Ltd. and the drafts of the applicable performance certificates.” Ex. 8, at 3.

95. The two agreements attached to Herczegh’s August 31, 2005 email concerned

“Macedonian Law on Electronic Communication and its by-laws” and “labour law related activities.” Both contracts had the date June 1, 2005 on their front page and on the signature page. The certificate of performance for the By-Laws contract bore the date July 31, 2015. The certificate of performance for the Labour Law contract bore the date August 15, 2015. Herczegh provided instructions where the contracts and performance certificates could be sent once they were signed. Deposition Ex. 54. Herczegh 2/12/14 tr. at 68-69, 82-83, 89-97, 115-20, 125-27 (email from Herczegh with attachments).


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96. The Stonebridge By-Laws contract was executed by Michael Kefaloyannis for Chaptex and Zoltan Kisjuhasz for Stonebridge. It bore the date June 1, 2005. The executed version was not changed from the draft sent by Herczegh on August 31, 2005. Kefaloyannis and Kisjuhasz also signed the certificate of performance, in a form identical to Herczegh’s August 31, 2005 draft. The certificate of performance bore the date July 31, 2005. Deposition Ex. 56 (executed contract).

97. The Stonebridge Labour Law contract was executed by Michael Kefaloyannis for

Chaptex and Zoltan Kisjuhasz for Stonebridge. It bore the date June 1, 2005. The executed version was not changed from the draft sent by Herczegh on August 31, 2005. Kefaloyannis and Kisjuhasz also signed the certificate of performance, in a form identical to Herczegh’s August 31, 2005 draft. The certificate of performance bore the date August 15, 2005. Deposition Ex. 57 (executed contract).

98. Magyar Telekom’s auditor testified that he did not know that the Chaptex contracts were

backdated, and that it “absolutely” would have been necessary for Magyar Telekom’s auditor to have been informed of this. Kos 5/28/14 tr. 92-94, 100-03, 112.

Use of Interstate Commerce

99. On May 31, 2005, Andras Balogh sent an email to MakTel CEO Attila Szendrei at the

email address [email protected] with a title that translates to “Agreement.” Ex. 4 at 2. The email attached a copy of the unsigned Protocol of Cooperation.

100. On July 5, 2005, Magyar Telekom in-house attorney Zsolt Herczegh sent an email from

the address of Peter Danko to Andras Balogh and Attila Szendrei, at the email address [email protected], attaching a draft Consultancy Agreement between Telemacedonia AD and Chaptex Holdings Ltd. Ex. 4 at 6-8.

101. The draft Consultancy Agreement attached to the July 5, 2005, Herczegh email was

subsequently revised to become the separate Frequency Fee, E-Communications Law, and Labor Law contracts. Ex. 4.

102. Microsoft Corporation operates the Outlook.com email service, formerly known as

MSN/Hotmail. Decl. of Alexander Yap, Ex. 4. 103. In 2005, all emails sent to or from Microsoft Hotmail email addresses were necessarily

routed through servers physically located in the United States. Decl. of Alexander Yap, Ex. 4.

104. In 2005, all servers for the Microsoft Hotmail email system were located inside the

United States. Microsoft did not store any emails from the Microsoft Hotmail service outside the United States in 2005. Decl. of Alexander Yap, Ex. 4.

105. In the year 2005, all emails to and from the Outlook.com (formerly Hotmail.com)

accounts [email protected] and [email protected] would necessarily have


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passed through, and been stored on, servers located in the United States. Decl. of Alexander Yap, Ex. 4.

Defendants’ Presence in the United States

106. Elek Straub is a Hungarian national who resided and worked outside the United States in

2005 and 2006, and has continued to do so since then. Defendants’ Joint Motion to Dismiss the Complaint, at 1 (Oct. 29, 2012) [Dkt. 35]; Straub Answer ¶9.

107. Between January 1, 2005 and the filing of the complaint in this lawsuit in December

2011, Elek Straub was not present in the United States for five years or more. Id.

108. Andras Balogh is a Hungarian national who resided and worked outside the United States in 2005 and 2006, and has continued to do so since then. Defendants’ Joint Motion to Dismiss the Complaint, at 1 (Oct. 29, 2012) [Dkt. 35]; Balogh Answer ¶10.


2011, Andras Balogh was not present in the United States for five years or more. Id. 110. Tamas Morvai is a Hungarian national who resided and worked outside the United States

in 2005 and 2006, and has continued to do so since then. Defendants’ Joint Motion to Dismiss the Complaint, at 1 (Oct. 29, 2012) [Dkt. 35]; Morvai Answer ¶11.


2011, Tamas Morvai was not present in the United States for five years or more. Id. Dated: October 5, 2015 Respectfully submitted,

__/s/ Robert I. Dodge______ Robert I. Dodge Thomas A. Bednar John D. Worland, Jr. Adam J. Eisner Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-5949 (202) 551-4421 (Dodge) [email protected] Attorneys for Plaintiff


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CERTIFICATE OF SERVICE

I certify that on October 5, 2015, a copy of the foregoing document was served upon all counsel of record via the Court’s electronic filing system, which sends notification to the following parties:

Robert B. Buehler ([email protected]) Carl Rauh ([email protected]) Lisa J. Fried ([email protected]) Counsel for defendant Elek Straub

William Sullivan ([email protected]) Kristen Baker ([email protected]) Counsel for defendant András Balogh

Michael L. Koenig ([email protected]) Victoria Lane ([email protected]) Counsel for defendant Tamás Morvai

____/s/ Robert I. Dodge______


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