South African paper raises gold price issue

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French firm takes BIS buyout battle to court

By Brian Love

PARIS, Jan. 18 (Reuters) -- A French firm contesting the terms of a
compulsory buyout of private shareholders in the Bank for
International Settlements said on Thursday it had started court
action against BIS advisers J.P. Morgan and Arthur Andersen.

Deminor, a corporate governance consultancy company, said it was
taking U.S. investment bank J.P. Morgan and the audit firm Arthur
Andersen to court in Paris in a bid to get the terms of the
controversial buyback reassessed independently.

The firm, which represents a portion of an estimated 15,000 private
holders of BIS shares, wants the offer price raised and and has
warned it will take wider legal action if necessary.

"We made our decision on the basis that there were numerous
irregularities and contradictions in the report drawn up by J.P.
Morgan on the evaluation of the price for the withdrawal of BIS
shares," Deminor said in a statement on the Paris court move.

"The plaintiffs also argue J.P. Morgan lacked independence vis-a-vis
the BIS and, more importantly, vis-a-vis the central banks that are
the BIS's majority shareholders and the ultimate beneficiaries of the
share buyback," it said.

The Swiss-based BIS founded in 1930 to handle German war reparations
-- has got into a bind since it hatched plans to buy out private
investors who hold 13.73 percent of its capital alongside the main
BIS shareholders, central banks across the world.

Despite legal actions or threats of litigation on both sides of the
Atlantic, the BIS's central bank shareholders endorsed the buyout
plan on January 8, backing an offer price of 16,000 Swiss francs --
which is based on an evaluation by J.P. Morgan that was reviewed and
approved by Arthur Andersen.

The BIS, the main coordinating body for the world's central banks,
declined comment on Deminor's latest move.

It has said in the past that the price is fair and that it was
conducting the buyback because having private shareholders is no
longer compatible with its role in the surveillance of bank standards
and financial markets across the globe.

J.P. Morgan's French division, which conducted the disputed
evaluation, was not immediately available for comment.

"We believe the price proposed for the withdrawal was fair," said
Arthur Andersen France spokeswoman Sabine Roux de Bezieux.

Deminor's Fabrice Remon, whose firm is heading several other high-
profile campaigns on the rights of minority shareholders, said he
hoped the Paris court, the Tribunal de Grande Instance, would order
an independent price assessment in a few weeks.

"What we want is a genuine evaluation," Remon said. "We are not
trying to block the transaction but we are trying to secure more
money retrospectively," he told Reuters.

Remon also said that J.P. Morgan, which recently merged with Chase
Manhattan Corp to form J.P. Morgan Chase & Co., was a dominant force
in the world gold market.

This, he said, made it even more important to seek another estimate
on the BIS share price, given that the BIS's central bank masters
held 80 percent of the world's gold reserves.

"We're not making any judgment on this," Remon said. "(But) they
could perhaps have easily found a bank where there was no question at
all of a potential conflict of interest."

Deminor has been waging the battle in Europe, but the BIS is also
under attack in the United States over the buyout of the shares which
were recently delisted in Paris and Zurich.

On a separate count, U.S. gold trader Reginald Howe has filed a suit
alleging that the BIS colluded with other central banks to depress
the world gold price. Howe, who is himself a private BIS shareholder,
has also complained about the buyback.

SocGen First Eagle Fund has also filed a complaint.