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In a case that could rattle commercial and investment banks that make private equity investments, RDO Equipment Co. has sued its former investment adviser and underwriter, Credit Suisse First Boston, over a deal involving CSFB’s private equity arm. The lawsuit, which the Fargo, N.D., construction equipment seller filed October 23 in United States District Court for North Dakota, accuses CFSB and its private equity operation, CSFB Equity Partners, of breaching its fiduciary duty to the company. It also alleges that, through a venture called Notrax LLC, which is jointly owned by the private equity unit and John Deere Construction Co. and competes directly against RDO, CSFB is guilty of unfair trade practices and has broken antitrust laws. The suit does not specify the damages RDO will seek. A spokeswoman for CSFB declined to comment citing the pending suit. In its written complaint, RDO claims it was double-crossed by both CSFB and Deere, which is an unnamed co-conspirator in the suit. RDO observes that CSFB underwrote its initial public offering, which raised $68.3 million, in January 1997. The proceeds were to be used to buy John Deere construction equipment dealerships and knit them into a network. The complaint says that while advising RDO on the IPO, Credit Suisse became privy to “extensive, details and non-public information regarding [the company's] business plan, operational strategy, planned acquisitions of construction dealerships and key employees.” The business plan had Deere’s blessing and required Deere’s cooperation to carry out, the suit notes. “The next thing that happened,” said RDO’s attorney, Max Blecher of Los Angeles’ Blecher & Collins, “was that CSFB thought the business plan was a hell of an idea. So CSFB went to Deere, formed this company called Nortrax, and now RDO can’t buy any more Deere dealerships. Deere has terminated its relationship with RDO, and Nortrax is buying all the dealers.” The breach of fiduciary duty charge turns on RDO’s assertion that CSFB Equity Partners struck the deal with Deere and conspired to restrain trade, in the complaint’s words, “at the direction and under the control of Credit Suisse First Boston Corp.” As to unfair trade, the complainant says Deere broke a pledge to allow RDO to control up to 15 percent of Deere’s dealership group. RDO also claims that CSFB and Deere are conspiring to eventually own up to 70 percent of the dealerships through Nortrax. Kevin Evanich, a partner at the Chicago law firm Kirkland & Ellis, which represents many private equity firms but is not involved in the RDO case, said that if the suit is successful, it would have broad implications for Wall Street, particularly for the many banks and securities underwriters that have in-house private equity investment operations. “It is not at all unusual for a private equity fund affiliated with an investment bank to be invested in a business that competes with the bank’s advisory clients,” Evanich said. “But in such cases, it is standard practice to erect ‘conflict walls’ to keep bankers working with corporate clients and the private equity arm from sharing information. “If this suit is successful, it would be a wake-up call for banks to be especially vigilant when it comes to conflict-of-interest issues.” Copyright (c)2000 TDD, LLC. All rights reserved.

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