Chrysler creditors sue Daimler, claim fraud

* Creditors say Chrysler stripped of best assets

* Seeking jury trial to determine damages

By Phil Wahba

NEW YORK, Aug 18 (Reuters) - Creditors of Chrysler LLC are suing Daimler AG (DAIGn.DE), accusing it of fraudulently stripping the U.S. automaker of "billions of dollars in assets" prior to its 2007 sale of the U.S. carmaker to private equity firm Cerberus Capital Management LP [CBS.UL].

That alleged fraud left Chrysler's unsecured creditors "unable to look to these assets to satisfy their claims," they alleged in a suit filed on Monday in federal bankruptcy court in Manhattan.

The creditors won permission last week from U.S. Bankruptcy Judge Arthur Gonzalez to file the suit. A spokesman for Daimler said at the time that the action was without merit.

In court documents filed last week, Daimler said it had "nurtured" Chrysler for nine years before selling control to Cerberus at a "steep loss" in a deal that included Daimler forgiving Chrysler's intercompany debt of $2 billion.

The creditors claim that Daimler knew in 2006 that its merger with Chrysler was a failure, and that realizing the extent of Chrysler's debts, Stuttgart, Germany-based Daimler decided to cut its links to avoid being saddled with Chrysler's billions of dollars in obligations.

The creditors accused Daimler of engineering the "fraudulent transfers" of the Chrysler assets and are seeking damages to be determined in a jury trial.

Daimler bought Chrysler in 1998, but failed to integrate the company's mass-market brands with its luxury Mercedes business.

Cerberus took control of Chrysler in late 2007, just as its sales began to tumble with the sharp contraction in U.S. auto sales that began in 2008.

Chrysler filed for bankruptcy in April, and U.S. Bankruptcy Judge Arthur Gonzalez cleared the way for Chrysler to emerge from bankruptcy in June in a transaction that gave operational control of the No. 3 U.S. automaker to Fiat SpA (FIA.MI).

The sale, which was funded and directed by the U.S. government, gave ownership of Chrysler to a trust fund affiliated with the United Auto Workers and the governments of the United States and Canada.

The case is In re Old CarCo LLC f/k/a Chrysler LLC, 09- 50002, U.S. Bankruptcy Court, Southern District of New York.

(Reporting by Phil Wahba; Editing by Richard Chang)