SAO PAULO/NEW YORK (Reuters) - A United States activist investor is asking CorpBanca SA's (>> CorpBanca) board to scrap its recent tie-up with Brazil's Itaú Unibanco Holding SA (>> Itau Unibanco Holding SA) and launch a new auction, alleging the Chilean bank sold its minority investors short while benefiting its controlling shareholder, according to documents seen by Reuters.

Hedge fund Cartica Management LLC said in a letter sent late on Monday to the board of CorpBanca that the Itaú deal, worth an estimated $3.7 billion, undervalued the bank's shares and gave an array of special benefits to Chilean billionaire Alvaro Saieh and his investment holding company Corp Group.

Cartica, which manages more than $2 billion, owns 3.2 percent of the Chilean bank, according to the letter. It declined to comment.

Santiago-based CorpBanca did not have an immediate comment. Efforts to reach Itaú's press officials were unsuccessful in Brazil, where many businesses were closed through Wednesday noon for the Carnival holiday.

CorpBanca executives have previously defended the deal, which was announced at the end of January, saying an association with Itaú would help catapult it into a regional leader.

The resulting entity, to be named Itaú CorpBanca, is expected to have a market value of $8 billion, about 10,000 employees and 390 branches. Under the terms of their deal, Itaú would have a 33.58 percent stake in CorpBanca through a shareholder agreement with Corp Group.

Cartica's move, a rare instance of investor activism in the region, threatens to upset Latin America's largest banking merger since 2008 and further underpins the difficulties facing the deal.

Shares of CorpBanca tumbled 13.5 percent on January 29, the day the deal was announced, reflecting disappointment among investors that terms were too favorable to Itaú and there was no buyout offered to its minority shareholders.

The deal gives Itaú an important foothold in retail banking in Chile and provides a way for it to grow in Colombia - South America's fastest-growing economy last year - where CorpBanca also has operations.

RETAIL TROUBLES

Saieh, a Chilean of Palestinian ancestry, began putting assets in his Corp Group empire on the block last year to raise cash after his retail holding company SMU, which owns supermarket chain Unimarc, disclosed accounting errors, raising its liabilities and leading it to breach debt covenants.

Saieh also controls Chilean daily newspaper La Tercera.

Late last year, Saieh began talks with Itaú to pursue a merger, an outright sale, or creation of a structure allowing him to remain a relevant shareholder in CorpBanca, sources told Reuters in December.

Besides Itaú, Spain's Banco Bilbao Vizcaya Argentaria SA (>> Banco Bilbao Vizcaya Argentaria S.A.) and Canada's Bank of Nova Scotia (>> The Bank of Nova Scotia) were also interested in the Chilean bank, sources told Reuters at the time. BBVA, as the Spanish bank is known, came close, but its proposal was not as attractive as Itaú's, a person with direct knowledge of the deal told Reuters late in January.

Cartica, which focuses on emerging market stocks, sought to persuade Saieh in two previous letters that the main argument to sell the bank should be price, and not the influence he could exert in the entity stemming from a merger.

ACTIVIST'S LETTER

In its latest letter, Cartica rebuffed an assertion by the bank that the all-stock deal with Itaú gave all shareholders equal treatment, alleging that it believed minority shareholders were disadvantaged "in return for special benefits accruing to" Saieh and Corp Group.

These benefits include a $950 million loan from Itaú to Corp Group and Saieh's right to name the combined entity's chairman, according to the letter.

"We urge you to take immediate steps to do what is right for all shareholders and run a full and transparent process to maximize shareholder value," Cartica's Senior Managing Director Teresa Barger said in the letter.

Cartica, which was founded in 2008, tries to influence managements and boards by engaging with them behind the scenes. The fund has a portfolio of about 15 to 20 stocks, focusing on companies with market value of less than $5 billion.

Its other investments include Cementos Argos (>> Cementos Argos SA) in Colombia, International Container Terminals (>> International Container Terminal Service) in the Philippines, and Alsea (>> Alsea SAB de CV) in Mexico.

(Reporting by Guillermo Parra-Bernal and Paritosh Bansal; Editing by Kenneth Maxwell)

By Guillermo Parra-Bernal and Paritosh Bansal