Pacquiao’s lawyer Judd Burstein and Muhammad’s lawyer Julian Friedman are locked in a bitter legal war that started before presiding federal judge Loretta Preska in Room 12-A at the Daniel Patrick Moynihan US Courthouse on Pearl Street in downtown Manhattan last Monday.
Pacquiao is the plaintiff and Muhammad, the defendant in the case to be decided by a jury of eight. Burstein and co-counsel Keith Davidson filed the $33 Million suit in the Southern District of New York last April 25.
The text of the complaint is available via the internet in the website braggingrightscorner.com.
"This is an action that arises from the shameless exploitation of a boxer by a greedy and unscrupulous boxing promoter," the suit said. "Pacquiao is one of today’s great boxers, both in terms of talent and commercial viability. Broadcasters and sites, such as casinos, pay millions of dollars to present his matches in which he literally risks his life.
"Unfortunately, Pacquiao has not received his fair share of those monies due to the misconduct of defendants M&M Sports, Inc. and its principal Murad Muhammad. That misconduct includes but is not limited to the following:
"Muhammad and M&M’s violation of 26 USC No. 1441 which required M&M to withhold and pay to the Internal Revenue Service an amount equal to 30 percent of Pacquiao’s purses. Instead, M&M paid those monies and more to a shell limited liability company controlled by Pacquiao’s business managers on the fiction, not even permitted by law, that the shell corporation would pay Pacquiao’s taxes. No such taxes were ever paid, however.
"Instead, through this scheme, M&M and Muhammad allowed the business managers to direct millions of dollars that should have been paid to Pacquiao. As a result, Pacquiao must now pay very substantial back taxes, penalties and interest.
"M&M and Muhammad used M&M’s diversion of monies to the business manager-controlled shell corporation to compromise the integrity of purse negotiations. Put simply, since M&M and Muhammad had facilitated a scheme that permitted Pacquiao’s business managers to retain as much as 50 percent or more of Pacquiao’s earnings, Pacquiao’s business management had a vested interest in not risking his exposure of their scheme by antagonizing Muhammad through hard negotiation for the highest possible purses. Instead, M&M and Muhammad had facilitated a situation where the business managers stood to earn far more through the shell corporation as opposed to simply taking their agreed-upon 10 percent of Pacquiao’s purses.
"Surely recognizing that disclosure of actual revenues for Pacquiao’s bouts would cause Pacquiao to question the paucity of the net monies he was receiving, M&M repeatedly failed to provide Pacquiao with the disclosures required by 15 USC No. 6307e (the Muhammad Ali Boxing Reform Act), thereby impeding Pacquiao’s ability to negotiate purses for future fights.
"M&M also breached its contractual obligation to provide Pacquiao with a bout agreement prior to his recent bout with Erik Morales."
US revenue official Cecile Glunt was expected to testify in court last Friday to confirm Pacquiao had not paid taxes on purses earned from six US fights since 2001 up to 2004.
A source revealed that Pacquiao paid taxes on his $1.75 Million purse from the Morales fight last March because his new manager Shelly Finkel made sure of it. What is disconcerting, the source added, is the fact that 30 percent of Pacquiao’s purses from his six US fights was allegedly withheld for tax purses and deposited in the shell corporation’s account. The amount was estimated to be about $480,000.
The shell corporation, Philippine Boxing, is where Muhammad deposited Pacquiao’s purses from his six US fights. Pacquiao owns no stock in the company.
Bank statements were reportedly obtained to confirm actual fund deposits in Philippine boxing and will be submitted at the trial as exhibits.
For instance, Pacquiao received a purse of $350,000 for fighting Marco Antonio Barrera in November 2003 but an amount of $580,000 was deposited in Philippine Boxing. A source insisted that since Muhammad allegedly had a 50 percent share of the net earnings, the actual purse was about $800,000. Pacquiao received a $100,000 bonus from Muhammad for knocking out Barrera.
In reply to Pacquiao’s complaints, Muhammad’s lawyer Julian Friedman insisted "M&M has fully performed all of its obligations to (Pacquiao) arising under both the agreement (their contract) and the applicable law" and "by virtue of the efforts of defendants, plaintiff has been one of the most highly compensated professional fighters in the lighter weight classes in the history of professional boxing."
Friedman denied Pacquiao’s accusations and said under a signed contract, Pacquiao "granted to M&M exclusive promotional rights to promote five fights over the 2 1/2 year period beginning on March 1, 2004, and expiring on Aug. 31, 2006." He said Pacquiao breached the agreement "by purporting to ‘fire’ M&M even though the agreement gives plaintiff no right to do so."
Muhammad has filed a counter-suit against Davidson, lawyer Nicholas Khan, trainer Freddie Roach and Finkel for allegedly conspiring "to induce Pacquiao to breach his agreement with M&M and to interfere with the contractual relationship between Pacquiao and M&M." The counter-suit is seeking damages of at least $20 Million.
Under usual circumstances, there is a "natural tension" between a promoter and manager because a promoter tries to lower a fighter’s purse to increase his profit and a manager tries to increase the purse because he earns a percentage of it. The Reform Act recognizes the "firewall" between the promoter and manager by stipulating full disclosure of negotiating terms of a fighter’s purse.
But in Pacquiao’s case, it was alleged that his promoter and manager enjoyed a 50-50 sharing of the promotional profit which is the net difference between the sources of fight income (ticket sales, sponsorships, foreign TV rights, money from TV, site fee) and expenses (public relations, judges and referee’s fees, insurance, sanction fees and fighters’ purses).