The Financial Times: Hermitage in Russia fraud claim

April 4, 2008

By Neil Buck­ley and Cather­ine Bel­ton in Moscow

Her­mitage Cap­i­tal, whose man­ag­er William Brow­der has been barred from Rus­sia for more than two years, alleged yes­ter­day that it and HSBC bank had been vic­tims of an elab­o­rate attempt in Rus­sia to defraud them of hun­dreds of mil­lions of dollars.

A legal com­plaint to Russ­ian pros­e­cu­tors sent by lawyers rep­re­sent­ing Her­mitage and HSBC Man­age­ment Ltd in Guernsey, which is trustee and man­ag­er of the Her­mitage fund, said the com­pa­ny’s Russ­ian assets had been the tar­get of a “large-scale crim­i­nal conspiracy”.

Accord­ing to the com­plaint, the attempt­ed fraud began with an inves­ti­ga­tion by an inte­ri­or min­istry unit into alleged tax eva­sion by Her­mitage last year.

The com­plaint, filed in Jan­u­ary and seen by the Finan­cial Times, alleged that as a result of the inves­ti­ga­tions, “assets of com­pa­nies were stolen through a series of frauds con­sist­ing of the fal­si­fi­ca­tion of evi­dence in court pro­ceed­ings and manip­u­la­tion of data”.

“These frauds occurred with the pos­si­ble assis­tance and par­tic­i­pa­tion of offi­cers of the … inte­ri­or min­istry and some judges of the arbi­tra­tion court of St Peters­burg,” it continued.

A crim­i­nal probe has been opened into HSBC’s claims, accord­ing to a copy of a Russ­ian legal decree.

Mr Brow­der, whose firm once man­aged Rus­si­a’s largest for­eign port­fo­lio invest­ment fund, has been denied entry into Rus­sia since Novem­ber 2005. His fund had fought to improve cor­po­rate gov­er­nance in Russia.

The Moscow inte­ri­or min­istry launched a crim­i­nal tax probe last June into a com­pa­ny linked to Her­mitage, which Mr Brow­der said was groundless.

News of Her­mitage and HSBC’s alle­ga­tions sur­faced yes­ter­day when Kom­m­er­sant, the Russ­ian news­pa­per, cit­ed unnamed inte­ri­or min­istry sources as say­ing Mr Brow­der had been charged in absen­tia with tax eva­sion. But the inte­ri­or min­istry said yes­ter­day it had not brought any charges against Mr Brow­der. It declined to com­ment on Her­mitage and HSBC’s claims.

Her­mitage said last year’s tax claim was bogus and had been used as cov­er for an attempt to steal assets from its asso­ci­at­ed com­pa­nies. It said that inves­ti­ga­tors seized files and oth­er mate­ri­als, includ­ing cor­po­rate seals, from its offices and those of its Moscow lawyers.

Her­mitage alleged that the doc­u­ments and com­pa­ny seals were lat­er used fraud­u­lent­ly and secret­ly to trans­fer con­trol of three enti­ties man­aged by HSBC that had con­tained Her­mitage assets to a com­pa­ny called Pluton.

These com­pa­nies were lat­er sued, alleged­ly with­out Her­mitage’s knowl­edge, by anoth­er com­pa­ny, Logos Plus, for breach­ing what Her­mitage says were forged agree­ments to sell Gazprom shares to it. A St Peters­burg court award­ed Logos $376m dam­ages with­out the knowl­edge of HSBC or Her­mitage, accord­ing to Her­mitage and to HSBC’s legal complaint.

The court awards were lat­er overturned.

Arti­cle was pub­lished in The Finan­cial Times.

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