Thursday, April 28, 2016

Trail of transactions alleged to link bank to Renord entities

A chain of transactions was used to transfer Oslo Marine Group (OMG) assets to firms owned by a former senior manager of Bank St Petersburg (BSP), it was alleged in the London High Court.

The case involves claims by BSP that OMG owner Vitaly Arkhangelsky is liable for $90m in loan guarantees that he defaulted on, while the Russian businessman is counter claiming for damages of $500m — alleging the bank illegally appropriated OMG assets in 2009.

Many of the assets were acquired by companies within the Renord Invest group, mainly owned by Mikhail Smirnov, a former director of BSP.

Arkhangelsky’s representative in court, Pavel Stroilov, alleged that a series of transactions involving assets of OMG company Western Terminal were designed to ensure they ended up in the hands of Baltic Fuel Company, in which Smirnov has a shareholding.

Stroilov asked Elena Yatvetsky, a lawyer who worked for Renord, about the chain involving half-a-dozen of its firms.

“Assuming that Renord was interested in this asset from the start, this long chain of transactions makes perfect sense as a plan to acquire those assets. Wouldn’t you agree with that,” Stroilov asked. Yatvetsky said she disagreed.

An auction process for another OMG asset, the Onega Terminal, was “rather odd”, Stroilov alleged, as it involved another series of links involving BSP, Scan, a company held and managed by Renord on behalf of the bank, the Russian Auction House as the bank’s agent and two bidders, as required by law, both controlled by Renord.

Yatvetsky replied: “I don’t think it’s odd in any way, because the bank is the creditor and had a defaulting borrower, they entered into an extrajudicial enforcement agreement, the bank used the services of an independent auctioneer, Russian Auction House, the auction was conducted, Mr Smirnov decided to bid, and in the course of a public sale he purchased these properties.”

Stroilov later asked if Renord was mainly run by former BSP employees or people otherwise connected with the bank?

Yatvetsky answered: “Yes, some of the company management used to work in Bank of St Petersburg, but they also used to work with Mr Smirnov in AVK company. It is a common occurrence [in Russia] when one of the managers from a group is changing jobs and moves to another company or creates his own business, usually the backbone of his staff moves along with him.”

Commenting on a lack of documentation about Renord’s dealings with BSP, Stroilov said there appeared to be a remarkable similarity between the way in which Renord was organised — where everything was built on trust of employees who held companies for it and nothing was put in writing — and the group’s relationship with BSP. “The bank trusts Renord quite unreservedly; isn’t that right?”

Yatvetsky answered: “Correct. This happens often in Russian business, because business in Russia, comparing to other countries, is fairly recent, and our legislation is not perfect.”

Stroilov further questioned a conflict of interests in a normal commercial environment between Renord wanting to acquire assets for as low a price as possible, and its role acting for BSP.

“I don’t see any conflict of interest here,” replied Yatvetsky. “The bank has always pursued the goal to sell the assets at the maximum price, and the price that was generated at the time was in fact the maximum price. Mr Smirnov could not dictate terms to the bank.”

The court has earlier heard that assets were sold at much lower prices than they were originally purchased for before the financial crash of 2008.

Stroilov further alleged: “Renord is no more than a collective name for various companies which are beneficially owned by the bank and/or by the bank’s top managers, through various nominees?

“No. Renord is an independent business, owned by Mr Smirnov,” Yatvetsky countered.

The case continues.

Paul Berrill


Tuesday, April 12, 2016

Sergei Guriev: Bank of St. Petersburg Tried to Deceive Regulator, Shareholders and Market

Justice Hildyard of the High Court of England and Wales continues proceedings on suit of Bank St. Petersburg vs Russian businessman Vitaly Arkhangelsky and Arkhangelsky's counterclaim against the bank.

On Monday, April 11, the banking expert for Arkhangelsky, Professor of economics Sergei Guriev, was cross-examined.

In 2008-14, he was a member of the boards in a number of Russian financial institutions including Sberbank, Russian Agricultural Bank and Russia Venture Company. He was also an economic advisor for Russia's government.

In 2011, Guriev was one of the experts who had to evaluate the 2010 verdict on the case of Mikhail Khodorkovsky and Platon Lebedev (so called “second Yukos case”). He, like the other eight experts, concluded that the court failed to establish the guilt of Khodorkovsky and Lebedev. That resulted in the Russian Investigative Committee launching the campaign of harassment against those experts. The pressure forced Guriev to leave Russia. In September 2016, he will start working as the chief economist for the European Bank for Reconstruction and Development.

In the course of the cross-examination, Guriev told the court that he found a number of irregularities in the Bank of St. Petersburg behaviour with regards of the OMG case. He stressed that some features of December 2008 arrangement between the Bank and OMG "made it not only irregular, but clearly improper".

The agreement between the Bank and OMG was the "highly unusual memorandum" rather than a written contract. With the loans secured by registered pledges of real estate the reason for requiring a transfer of OMG companies' shares as an additional security seems "unclear", Guriev pointed out.

In the repo transaction the assets were transferred not to the Bank or its subsidiary, but to a number of companies which were not directly controlled by the Bank, the Original or Subsequent Purchasers that were mostly subsidiaries of Renord-Invest. The co-founder of that group was Vladimir Malyshev, the husband of BSP deputy chair Irina Malysheva. Guriev noted that no usual safeguards for transactions with affiliated parties were applied. He described the arrangement between the Bank and Renord-Invest as “intentionally non-transparent”. The Bank present and former managers' evidence suggests that such tactics were used to "deceive the regulator, the shareholders and the market", Guriev said.

* * *

The bank claims that Arkhangelsky, who, together with his family, left Russia in 2009 and was granted political asylum in France, did not settle with creditors and tries to recover a debt.

Archangelsky in his statement of claim says that during the global financial crisis the bank agreed to defer payment on loans for six months. As a collateral, the bank demanded Archangelsky to transfer the shares of companies that were a part of his Oslo Marine Group - West Terminal port complex and Scandinavia insurance company, the owner of a half of Onega terminal. Before the stipulated term expired, the bank demanded loan repayment and later used its political contacts including top law enforcement officers and St. Petersburg Governor Valentina Matvienko, sold the shares to a sister firm at a lower price and changed the executive of Arkhangelsky's companies. He estimates the damages at $500 million.