Ex-Siemens Managers Convicted of Bribing Enel Units (Update5)

May 14 (Bloomberg) -- Siemens AG, embroiled in a six-month corruption probe, was ordered by a German court to pay 38 million euros ($51 million) as two former managers were found guilty in a bribery case.

Andreas Kley, an ex-finance chief at Siemens's power- generation unit, and Horst Vigener, a former consultant to the company, were convicted today by the regional court in Darmstadt on charges related to payments of 6 million euros to managers of two Enel SpA units to win orders. Siemens was ordered to give up some of the profits it made from the sales.

``For Siemens, this verdict is a real problem and I am afraid there are many others to follow,'' Guenter Heine, a German professor of criminal law at the University of Bern in Switzerland, said in a telephone interview. ``Things seem to have got out of hand at Siemens -- there is not just one murky character, it rather looks like a systematic problem.''

The verdict may increase pressure on Munich-based Siemens to explain how cases of corruption went unchecked by top management. A separate probe at the telecommunications unit, which started in November and has spread to at least six countries, has prompted the resignations of Chief Executive Officer Klaus Kleinfeld and Chairman Heinrich von Pierer.

Suspended Sentences

Kleinfeld and von Pierer said in December that Siemens probably fell victim to a ``sophisticated'' criminal scheme by rogue employees in the telecommunications division. Siemens, which wasn't accused in the Darmstadt trial, said today's order to give up some of the profit ``has no basis in law or in fact'' and it will appeal.

The court gave Kley a two-year suspended prison sentence and Vigener a nine-month suspended sentence. Kley's attorney, Eberhard Kempf, said his client will appeal the verdict. He declined to comment further. Vigener's lawyer, Wolf Schiller, said his client hadn't yet decided whether to appeal.

Kley must also pay 400,000 euros to charity within 18 months after any appeals, Buss said. Within the period, Kley may apply to the court to reduce the amount if Siemens seeks damages from him, Buss said.

`Personal Risk'

The charges centered on the payment of Siemens funds to managers of Enel Produzione SpA and Enelpower SpA to win gas turbine orders.

``Kley was the person at the power generation unit who was responsible for ensuring Siemens's compliance rules were implemented,'' said Rainer Buss, the presiding judge. ``He told others that Siemens did not back such payments and that the persons involved took a personal risk. This risk has been realized today.''

Buss said that many people at the unit must have known about the idea of using bribes. ``The question of whether the central management board knew about this was not relevant for our case,'' the judge said.

While Kley and Vigener admitted to having paid the money between 1999 and 2002, they denied the payments harmed Siemens or broke the law at the time.

``Bribing a private company abroad was already a crime in 1999 and the defendants could have known that,'' Buss said.

Change of Law

Kley's defense lawyers had argued that bribing a private company outside of Germany only became a crime in 2002, when the country's bribery laws were amended.

``We are content that the court followed our view that bribing foreign companies was already a crime at the time,'' Ulrich Busch, the prosecutor in the case, told reporters. ``But we do not think that a suspended sentence is enough to deter others to commit crimes like these,'' he added. The prosecution will consider an appeal, Busch said.

Kley was guilty of breaching his fiduciary duties because he had Siemens's money transferred into slush funds outside the regular books, Buss said. ``Siemens's money was jeopardized,'' Buss said.

Vigener was only convicted of aiding the bribery because he merely executed decisions made by Kley, the court said.

``The court has totally followed our line,'' said Schiller, Vigener's lawyer.

Italian Connection

On May 7, the prosecution asked the court to sentence Kley to three and a half years and asked the court for an 18-month suspended sentence for Vigener. The prosecutor had also asked the court to force Siemens to pay the German government 97.7 million euros of the money it earned from the gas-turbine sales.

The payments became public in 2003, when Italian prosecutors opened a probe that led to the conviction of two other German managers in Italy. Siemens also had to pay 6.1 million euros to the Italian government and a fine of 500,000 euros.

In December 2003, Siemens reached a settlement with the Enel units, which cost Siemens 113 million euros, Buss said. Siemens made 103.8 million euros in profit from the gas-turbine sales, Buss said. The court took into account the payment to the Italian government and some of the payments to Enel when assessing how much of the profit Siemens had to give up, Buss added.

In separate cases, prosecutors in Munich and Nuremberg are examining allegations that Siemens officials used illegal funds to win customers or gain employees' goodwill.

Siemens has retained New York City-based law firm Debevoise & Plimpton LLP to look into the allegations and report to the company. In April, German prosecutors received a request by the U.S. Securities and Exchange Commission to share information about the probes.

Shares of Siemens dropped 24 cents, or 0.3 percent, to 86.86 euros in Frankfurt today, valuing the company at 77.8 billion euros. The stock is up 16 percent this year, compared with a 13 percent gain of Germany's 30-member DAX benchmark index. UBS analysts Michael Hagmann and Christel Monot said that while they were ``uncomfortable with the course of events at Siemens,'' several units were showing a ``strong operating performance.'' The analysts increased their price target to 107 euros from 101 euros and reiterated their ``buy'' rating.

To contact the reporter on this story: Karin Matussek in Darmstadt at kmatussek@bloomberg.net; Simon Thiel in Munich at sthiel1@bloomberg.net

To contact the editor responsible for this story: Eamonn Sullivan at esullivan@bloomberg.net; Zimri Smith at zsmith@bloomberg.net.