Merrill faces civil suit in Jakarta

A dispute between Merrill Lynch and an Indonesian private banking client will be heard by a Jakarta court, a judge ruled yesterday, raising the stakes in a battle in which Singaporean courts have already ruled twice in the bank's favour.Indonesian police have declared Lily Widjaja, the head of Merrill's Jakarta office, and Rahul Malhotra, managing director of its Singapore office, suspects in a parallel but related criminal case. They are accused of embezzlement and defamation in relation to the civil case between the bank and the client.

The civil suit is one of several involving Indonesians who claim banks treated them unfairly or failed fully to inform them about products on which they suffered heavy losses when stock markets and the rupiah crashed last year.Foreigners will also be watching it to assess the current state of Indonesia's notoriously unpredictable legal system.Merrill's dispute with Prem Harjani and his company, Renaissance Capital, began when he used a $17m credit line with Merrill's Singapore office to buy $14m of shares in Triwira Insanlestari, an Indonesia-listed company, in mid-2008.Merrill said the credit line could not be used to buy Indonesian stocks and asked Mr Harjani to repay the money. Merrill began selling the purchased Triwira shares after no money was received within three days but suffered significant losses because global stock markets had crashed in the interim.

Soon after, Mr Harjani repaid $2m but, to collect the rest, Merrill filed a suit in Singapore. The bank succeeded in freezing Mr Harjani's assets there and won when the Indonesian appealed.While the dispute was working its way through the Singapore courts, Mr Harjani filed a suit in Jakarta, a common strategy for Indonesians involved in legal battles overseas.Mr Hajani is claiming for Rp1,000bn ($97m) in damages, saying Merrill sold his shares without permission. One of his lawyers said all the evidence would come out in court. Hearings are due to start in a fortnight.Merrill said the action in Indonesia was "without merit because the Indonesia office was never involved in the transactions" .Frans Hendra Winata, Merrill's lawyer in the civil case, said after yesterday's hearing: "I'm still optimistic about the final outcome because we have very strong supporting evidence." He said the bank might appeal against yesterday's decision.Mr Winata said the criminal case against Ms Widjaja was also baseless. "How can you consider her a suspect when there was no relationship [between her and Mr Harjani] at all," she said.

Citibank and Bank Danamon, a local bank controlled by Singapore's Temasek Holdings, are among the other institutions that have faced legal claims over the performance of financial products over the past year.

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