Ukraine billionaire accused of fraud and coercion in US lawsuit

By bne IntelliNews July 31, 2013

Graham Stack in Kyiv -

Ukrainian billionaire Dmitry Firtash and his bank seized a soybean oil plant through "a campaign of fraud, physical threats, coercion and corruption," according to a lawsuit brought by businessmen Vadim and Ilya Segal. But the case may bear not so much on ownership of the plant, as on a massive bank fraud in Ukraine committed nearly five years ago at the height of the global financial crisis - and could spark revelations about the reach of organised crime in post-Soviet banking.

Brothers Ilya and Vadim Segal, the owners of Cyprus company Dancroft Holdings, in turn the former owner of Ukrainian company Kakhovka Prom Agro, have filed a complaint against one of Ukraine's richest and most furtive men Firtash and Nadra Bank, currently the Ukraine's 11th largest lender, in New York County Supreme Court.

According to the complaint, Firtash, as the new owner of Nadra Bank after 2008, pressured the Segal brothers over around $40m outstanding loans to Nadra owed by Kakhovka Prom Agro, a soybean oil producer in Kherson region, and other agricultural businesses controlled by the Segals. The brothers claim that Firtash entered a handwritten agreement with them in July 1, 2009 that apparently settled the issue of the debts, freeing Kakhovka from further payments in exchange for the Segals' purchasing the debts at 50% of their value.

However, according to the complaint, Firtash failed to comply with the agreement and instead launched a barrage of lawsuits. In addition, Nadra Bank deliberately supplied Kakhovka with a false bank account number, preventing the successful transfer of any funds to the bank. In December 2010, Nadra Bank then took control of the plant, installing new management. Firtash' press service has declined to comment on the complaint.

The whole saga about the dispute and alleged seizing of Kakhovka Prom Agro is used to explain why in March 2011 Ukraine's security service SBU brought charges of large-scale fraud against the Segals - charges which have now placed them on Interpol's red list, the closest that exists to an international arrest warrant. This was allegedly part of the plan forcing the Segals out of the country, making them unable to contest the takeover of Khakovka.

The complaint adduces widespread reports (although apparently no documentary proof) that the then head of the SBU, Valery Khoroshkovsky, is a business partner of Firtash, together with head of the presidential administration Sergei Levochkin, and former energy minister, now Deputy Prime Minister Yury Boiko. Thus according to the complaint, the SBU, in bringing charges against the Segals, was simply acting on behalf of Firtash. "As a result of Firtash's intimate connections to the government, there is no fair and impartial forum for plaintiffs' grievances in the Ukraine," the complaint reads.

The Segals are now demanding actual and punitive damages against Firtash and Nadra Bank for their "extreme and outrageous conduct," including breach of contract, unjust enrichment, fraud, and conspiracy.

Blast from the past

The complaint apparently neglects to mention some key facts, however. The Segals themselves are widely to believed to have been from 1997-2008, via a proxy, one of the major shareholders in Nadra Bank before its bailout. Publicly they only acknowledge on Vadim Segal's blog that "in 1996 Mr. Segal took part in reorganization and development of the bank."

However, their agricultural companies feature among the leading borrowers from the bank, in a list of its largest debtors published by the bank in October 2009. The other leading debtors were companies linked to Ihor Eremeev, owner of the Kontinuum group of fuel retailing companies, also believed to have held a large stake in the bank via a proxy. In addition, the Segals' ties to Nadra Bank's manager from 1997-2009 and co-accused, Igor Gilenko, appear corroborated by leaked company data from the British Virgin Islands database, which show the Segals and Gilenko to be co-directors of an offshore set up in 2003, Universal Advisory Capital Limited.

According to Ukrainian court records, the Segals are accused of conspiring with Gilenko to steal $25m from Nadra Bank in 2008, via companies KUA Kruar and TOV Solnechnaya Dolina. An appeal against the charges was turned down by Ukrainian courts in June 2011, and in July 2011 the Segals fled Ukraine, according to Vadim Segal's blog.

Nadra Bank was before the crisis Ukraine's eighth largest and a brash exponent of the virtues of the credit boom, with CEO Igor Gilenko touted as a financial Wunderkind and regularly winning top awards as banker of the year.

But the dream turned sour. Allegations of massive fraud at Nadra Bank in late 2008 are no invention of Firtash and his cronies: It was in fact then prime minister Yulia Tymoshenko - Firtash' arch-enemy - who first railed against the theft of bailout funds from Nadra as the global financial crisis struck. According to reports, the National Bank of Ukraine lent Nadra Bank nearly $1bn from October through December 2008, but in February 2009 the bank had nevertheless to be placed under temporary administration. The bank had reportedly used more than half of the NBU money, intended for recapitalisation, to buy dollars at the official lower rate and re-sell them commercially at a higher rate. The remainder was used to make new loans. It is these new loans made in October-December 2008 that the criminal charges against the Segals apparently refer to.

Also listed as co-conspirators in the large-scale fraud at Nadra Bank are unnamed officers at Latvia's Trasta Komercbanka, presumably where the allegedly stolen funds were transited through. Trasta Komercbanka has previously been involved in similar stories - for instance listed as transiting $1.5bn moved by Kazakhstan banker Mukhtar Ablyazov from his bank BTA in an assets retrieval court case won by the now nationalised BTA in the High Court of London in 2011. The bank denies any irregularities regarding anti-money laundering compliance.

However, the mention of Trasta Komercbanka officers as co-conspirators of the Segals is intriguing, because the bank is linked to Firtash through his long-term junior partner Ivan Fursin, and other associates. Fursin owns 20-33% in Trasta Komercbanka. In 2009, Charles Treherne, deputy head of Firtash's holding company Centragas AG, sat on the board and held a stake in Trasta Komercbanka. Centragas is now Nadra Bank's shareholder.

Firtash may use this fact to refute the Segals' claims that he is behind the criminal charges brought against the Segals - why would he incriminate a bank to which he is closely linked? The real reason for filing the lawsuit may be for the Segals to build a case against extradition, bne sources believe.

Juicy revelations

The court case may be fascinating for what it yet reveals about the post-Soviet underworld, and the organised crime's reach in the region's banking - especially if, as seems probable, the Segals' intention may be to drag Firtash's name through the mud until he lobbies in Ukraine to get charges against them dropped.

There is plenty of potential mud out there, considering that even such a "diplomatic" source as the leaked US embassy cables at the wikileaks website adduces business links between Firtash and alleged global crime lord, Kyiv-born Semyon Mogilevich, now purportedly resident in Moscow. The cables even quote Firtash directly acknowledging such links. Firtash has denied making any such statements.

Moreover, the Segals may be optimally placed to shed light on such ties: their business career started in a number of banks in 1990s' Russia that later acquired a reputation for organised crime links: Vadim Segal partnered Aleksei Frenkel at Moscow's Neftyanoi bank 1993-1997, as a result of which "the bank became one of the most innovative financial institutions in Russia," according to Segal's blog.

In 2006, the Central Bank of Russian withdrew Neftyanoi's licence due to money-laundering suspicions, whereupon Russia's deputy central bank head and "anti-money laundering tsar" Andrei Kozlov, was slain by Ukrainian hired killers in Moscow. In 2007, Neftyanoi's Frenkel received a 19-year jail sentence for organising the killing. The Segals failed to respond to questions filed to them via their blog and their lawyers.

The Segals may well be now grinding their teeth as they bitterly rue missed chances, with the fifth anniversary of the global financial crisis that devastated Ukraine's economy looming: In the months leading up to the crisis, European banks were queuing up to pay top dollar for Ukrainian banks, and Nadra Bank one of the few top ten banks not yet to have closed a deal: according to a Forbes Ukraine report, in January 2008 Italy's Intesa Sanpaolo offered $1.5bn for the bank. However the Segals and their co-owners held out for more - then the crisis struck, and they lost everything.

Someone else got lucky in their stead: Intesa Sanpaola in the final analysis purchased the smaller Pravex Bank from the then mayor of Kyiv, Leonid Chernovetskii, for $750m, in February 2008, only months before the crisis struck. On July 23, 2013, Ukrainian media reported Intesea Sanpaola has put the bank up for sale after years of losses, with evaluations at around one-fifth of its original acquisition price.

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