Russian tycoon faces charges of $1bn fraud and tax evasion

WHEN one of the plum prizes went on the block in Russia’s chaotic sell-off of former Soviet assets, the highest bid for a stake was $1 billion — but prosecutors say Mikhail Khodorkovsky snapped it up for just $210,000.

Detailed in a 33-page indictment, the allegations of bid-rigging and fraud are among the charges that have made Russia's richest tycoon its most famous inmate.

The government claims Khodorkovsky has cheated his country out of more than $1 billion through fraud, tax evasion and other crimes. But critics see his jailing as the response of a control-minded state to a man who emerged from the crooked mould of post-Soviet capitalism to become chief of a progressive company then riled President Vladimir Putin's Kremlin by showing signs he wanted to remake Russia, The prosecutors' story of the 1994 sale of a 20% stake in Apatit, Russia's largest manufacturer of a key fertiliser component, is told in the indictment called Information on Criminal Case No 18/41-03.

According to the document, representatives of four companies set up expressly for the Apatit auction submitted bids guaranteed by the president of Bank Menatep, whose board chairman was Khodorkovsky.

The day after the auction in the Arctic city of Murmansk, prosecutors say, the three top bidders declined to close the deal and the shares went to the lowest bidder, which paid the nominal price of about $210,000 and pledged to invest $283m in Apatit.

But the pledge was never fulfilled, according to prosecutors, who say that through a series of manoeuvres including making payments that were returned within a day and hiding shares by breaking up the company that won the auction the investment was never made.

Prosecutors say a $15m settlement reached last year is invalid, arguing the Apatit shares were worth $62m and that the company that made the winning bid in 1994 falsely claimed it could not return the shares.

Khodorkovsky's lawyer Anton Drel said the charges are baseless. Critics call it a Kremlin-backed attempt to curb Khodorkovsky's financial and political clout and retaliation for funding opposition parties running in Sunday's parliamentary elections.

"There are dozens of people in a similar position who feel quite safe despite their past misdeeds, just because they are loyal to the present regime unlike Khodorkovsky, who manifested his opposition and support for forces that challenged Putin's authority," said Yevgeny Volk, head of the Moscow office of the Heritage Foundation.

Khodorkovsky, arrested October 25, is jailed until December 30, but prosecutors can seek an extension and the trial cannot begin until defence attorneys have familiarised themselves with the charges a process that could take six months.

Putin, who is expected to win re-election next March, insists the case is not politically motivated. He says the prosecution of Khodorkovsky is part of a legitimate effort to tackle the economic crime and corruption plaguing post-Soviet Russia.

This effort appears to have the approval of many Russians, who resent the so-called "oligarchs" because they won their fortunes in dubious schemes buying up state-owned businesses at bargain prices during privatisation while most of the nation remained mired in poverty.

Friends and foes of Khodorkovsky, 40, say the bespectacled billionaire's mild-mannered demeanour hides a deep determination.

"When he starts to play the game, he plays the game to win," said Bruce Misamore, the American chief financial officer of Yukos, the company Khodorkovsky built into Russia's largest oil producer before quitting as chief executive after his arrest.

The game had few rules in the chaos that followed the Soviet collapse, and the former Communist Party youth movement leader did win.

He first headed Bank Menatep, then acquired control of Yukos for about $300m in an auction run by his bank and built a fortune estimated at $8bn by Forbes magazine. On the way, critics say, Khodorkovsky employed sleight of hand and scare tactics that stunned investors and contributed powerfully to the image of a lawless Russia.

Khodorkovsky is accused of frightening minority shareholders into selling stock in Yukos subsidiaries by threatening to issue a flood of shares that would make their holdings nearly worthless, then bought up the equity at bargain prices and never went ahead with the share issues.

Then, the tycoon abruptly changed course. Around the time Putin was first elected, in 2000, Khodorkovsky

re-invented himself and his company, pioneering more public business practices and changing his image from predator to philanthropist. Some Khodorkovsky supporters have a simple explanation for the shift.

Some believe having consolidated his control over Yukos and its subsidiaries and with the threat to private property easing and the business environment improving Khodorkovsky began to focus on increasing Yukos' value, making it more attractive to investors by cleaning up its image and business practices.

"When it served his interests to act in ways that were not friendly to shareholders, he did so without mercy," said William Browder, chief of Moscow-based Hermitage Capital Management. "When it served his interests to promote good corporate governance, he could not have been a better role model."

Khodorkovsky's troubles with the Kremlin began at a meeting last February. He said government corruption must be stopped; Putin asked him where his own money came from.

Russian officials also worried about the Khodorkovsky funding of two liberal parties running against the main pro-Putin force and his attempts to influence legislation and speak out on foreign policy.

The start of the prosecutors' campaign against Yukos the July 2 arrest of major shareholder Platon Lebedev came weeks after a report accused him and other tycoons of plotting to control parliament and make one of their own prime minister.

"Khodorkovsky's example is directed to show everyone what will happen to them if they are not completely loyal to the current authorities," Volk said.