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By John Helmer, Moscow

Mikhail Fridman (lead image, left) has enough problems not to want to make his position worse in the US, Europe and Russia – all at the same time.

There have been recent protests outside Fridman’s Alfa Bank branches in Moscow, St. Petersburg and Nizhny Novgorod, as well as inside the State Duma in Moscow, accusing Fridman of helping to finance the troops of the Kiev regime in combat on the Novorussian front.

Fridman’s Russian telecommunications company Vimpelcom – headquartered in Amsterdam, listed on the Nasdaq Stock Market in New York – has been under close supervision by US Government inspectors as part of an anti-corruption settlement of its activities in Uzbekistan a year ago. Then last week in Madrid, Fridman and Vimpelcom were reported to be under joint US-Spanish investigation for a fraudulent takeover attempt at the Spanish telecommunications and games provider, ZED+; and allegedly for paying bribes through ZED+ companies in Russia to associates of the current Russian Interior Minister, Vladimir Kolokoltsev.

The former chief executive of Vimpelcom Russia, Mikhail Slobodin, is in hiding, on the run from a  corruption indictment filed in the Russian courts last September. 

Fridman’s LetterOne holding has announced from London it will not be investing in Russia in future, and prefers the US instead. “It’s too risky,” Fridman told Bloomberg  last year. 

So why have the risk-averse Fridman and the fugitive Slobodin engaged the San Francisco-based, Russian-speaking Ukrainian Gregory Shenkman (lead image, right) when Shenkman is currently facing multiple court claims in Pennsylvania,  Delaware,  and California for millions of dollars in unpaid debts, alleged embezzlement, and sexual harassment?  Sources in California and also in Italy,  where Shenkman has been seen in recent days, claim Fridman needs the American “to hustle for the next generation of data applications technology — apps — to install on telephone devices and revive growth of revenues and profits. Shenkman is part of Fridman’s business shift out of Russia. But like ZED+, Shenkman is a big risk in the US.”

Sources in Italy confirm that Shenkman is regularly at the offices of Wind, the Italian unit of the Vimpelcom group. Wind, according to the latest Vimpelcom financial report of November 3, has already moved past Beeline, the Vimpelcom brand in Russia, to become the biggest revenue and earnings source in Fridman’s company, and its fastest growing profit centre. The merger of Wind with the Chinese-owned 3 Italia, approved by the European Union in September and the Italian government a month later, will dwarf the Russian value and identity of Vimpelcom, as it becomes the largest mobile telecommunications company in Italy.


Left, the Wind building in Milan; right, Wind flaship store display in Milan of “a new world of retail telecommunication” http://www.retail-square.com/shops/wind

Shenkman, 55, came from Kiev to the US during the Soviet Jewish emigration of the 1970s. When the first reports of his involvement with the Fridman group were reported in July 2015, he refused to elaborate or answer questions. So too at the time did his San Francisco lawyer, Michael Solomon. For the details, read this.

In the year and a half since then, Vimpelcom has plummeted in market value from $8.7 billion to $7 billion. Shenkman is much poorer, too, according to US court papers which register him as living on this street in Tiburon, on the north shore of San Francisco Bay, with a view of Alcatraz prison island.

According to court papers filed in Pennsylvania last January, Shenkman cheated Return on Intelligence (RoI), a technology company of which he was an executive and board director; attempted to extort money for himself; and blocked the sale of the ROI company to EPAM Systems, a US-based global technology provider for insurance, banking and telecommunications. The claim by ROI  charges Shenkman with “a long history of professional and business misconduct, including bad management practices and misuse of funds, breach of fiduciary duties.” In the court case, which has yet to come to trial, Shenkman is accused of using inside information to attempt to cut a private deal with EPAM and enrich himself at the expense of his ROI colleagues and shareholders. Shenkman’s “conduct was willful, wanton, intentional, malicious and reckless,” the court claim charges, and   “constitutes civil conspiracy to commit unlawful act[s]”.

Shenkman responded by filing an arbitration claim in San Francisco through San Francisco lawyer Loren Kieve (right). Shenkman claimed he was a secured creditor and RoI owed him $2.9 million. RoI said the obligation did not exist. His purpose, according to Shenkman’s fellow directors, was extortion. They have told the court Shenkman filed his arbitration demand expecting “it would lead EPAM to refuse and cancel the deal causing significant damage to ROI. The Arbitration Demand was designed to coerce ROI to settle with Shenkman so he would withdraw the arbitration claim and allow the EPAM Deal to close.”

In April 2016, there was a fresh claim against Shenkman  in Delaware state court. This accuses him of stealing money from Exigen Ebit, another communications technology developer where he was chief executive.  The court documents charge him with “hijacking” his company’s bank account; embezzling company revenues, and secretly diverting them into his own bank account; “mismanaging the company’s funds, incurring payroll tax liability to the IRS [Internal Revenue Service] in excess of $500,000 in the last two quarters of 2012 and the first quarter of 2013 and placing EbIT and its officers at risk for personal criminal liability to the U.S. Government.”

On April 25, 2016, a few days after the Delaware court case started, in the federal US District Court of San Francisco Shenkman was accused of defaulting  on several million dollars in personal debts to a Russian of Korean origin, Ir Sek Den. The loans themselves had been first granted to Shenkman and a Russian partner of his in 2009. The payback provisions were then modified in 2012, and repayment set for January 2014. This was then extended to April of 2016. When Shenkman’s partner paid up but Shenkman refused, he was charged in court with lying to his creditors. He was also accused of concealing that he was insolvent.

According to an application to the court by lawyers for Ir Sek Den for an order to require Shenkman to hand over share certificates for one of the Silicon Valley companies which Shenkman previously managed and held interest in, and which he had pledged as security for the loan money. He refused to hand over the stock.  “There is considerable evidence,” the court was told, “that the Defendant’s [Shenkman] financial condition is weak and deteriorating. The Defendant has been sued twice in calendar year 2016 alone, and faces a sexual harassment trial in October of this year.”

The sex charges have been filed in San Francisco Superior Court by a woman who had been employed by Shenkman at the San Francisco office of a company he served as a chief executive.  He is accused of repeatedly coercing her into joining him and his friends in drinking and sex parties at Shenkman’s house, his banya, and his bed. “I am a really good friend to have,” Shenkman is quoted as telling the woman in the court papers, while trying to kiss her. “In my life, there are two kinds of people: friends and enemies, and you don’t want to be on the enemy side.” The court has yet to issue its judgement.  An earlier court case from another of Shenkman’s women employees was settled before trial. 

Shenkman claims he is friends with the Fridman group; they are reluctant to reciprocate, at least not on the public record. Shenkman has told Slobodin (right) and other senior executives in the Fridman telecommunications group that he can deliver new US technology companies for takeover by Vimpelcom at start-up or distress prices. He has also presented himself to technology developers  as the go-between they need for making technology and share sales to Vimpelcom and its units outside Russia. 

Shenkman is not a technology developer himself, nor a telecommunications or computer engineer, says a Ukrainian lawyer familiar with the Shenkman cases. “His reputation is that of a decent salesman,” according to a Moscow source.  “In the US I believe the word for that is hustler.” He is described as a gateway for Fridman’s men to build their portfolio of US companies, US bank accounts, and a business profile in the high-technology Silicon Valley,  which is Fridman’s priority business target.

Between Slobodin and Shenkman, a London source says there is a business friendship. “It’s Misha and Grisha,” says the source who knows Slobodin and his superiors at Fridman’s holding company. How well they know Shenkman’s business record, or the litigation now under way, the source does not know.

Last September Slobodin was charged in a Moscow court with bribery and corruption offences alleged to have taken place when he was managing an electric utility company in the Komi republic, before he moved to Vimpelcom.  For details of the charges, read this.    It is reported in Moscow that Slobodin managed to flee the country after he got a tipoff of his impending arrest.

Slobodin is incommunicado. Shenkman did not respond to a request to clarify his business relationship with the Fridman group of telecommunications companies.    

Shenkman’s links to Fridman’s inner circle also include Alexey Reznikovich (below, left) and  Gennady Gazin (right).

Reznikovich, with MBA degrees from the US and France, has been in Fridman’s Alfa group since 2002; he has concentrated on running the group’s telecommunications companies since 2007. At present he is managing partner of LetterOne Technology; for more details, read this. Gazin, a telecommunications engineer by training, is cited in US court papers as a director of one of Shenkman’s companies now under investigation. He is also on the board of Vimpelcom  and a member of the advisory board of LetterOne Technology. Gazin has admitted he was involved in investing in some of Shenkman’s schemes a decade ago. He has been reluctant to acknowledge what happened to the money, or how close he remains to Shenkman. 

Asked to clarify the role Shenkman has been engaged to perform in the group, spokesmen for LetterOne and Vimpelcom refused to reply to telephone calls and emailed questions.   At Wind in Italy, Piero Di Primio, the company spokesman, did not deny that Shenkman has been at the company’s offices; he did not clarify what their business association is.  

The Fridman group have announced two asset acquisitions already this year which appear to have involved Slobodin, Reznikovich,  and Gazin,  but not Shenkman. One is the Russian laboratory-developed facial recognition app called FindFace

A second is the California-based free mobile telephone service, FreedomPop; for details of the $50 million investment by LetterOne, read this. FreedomPop has been reluctant to acknowledge  Fridman when it identifies its capital stakeholders and investors,  although LetterOne  now holds one of the three seats on the FreedomPop board and controls a blocking stake of more than 25% of the company

FreedomPop’s founding shareholders Stephen Sokols and Steven Sesar,  respectively chief executive and chief operating officer, don’t list a corporate telephone number and avoid receiving press questions. They were asked by email if,  in their business with LetterOne, they have dealt with Slobodin, Gazin and Shenkman. They did not reply.

To lobby for approval of Fridman’s investment in FreedomPop by the US Treasury-run Committee on  Foreign Investment in the US (CFIUS),  Fridman used Washington-based lobbyists, Richard Burt, who claims to be close to President Donald Trump; and Thomas McLarty, a former chief of staff  to President Bill Clinton. They are listed by LetterOne as advisors to its board.  A CFIUS lobbying operation by LetterOne, which is registered in Luxembourg, should have required Burt and McLarty to register under the US Foreign Agent Registration Act (FARA). A check of the FARA files reveals no such registration.

Bank analysts following Vimpelcom say the share price of the company plunged lower last year than at any time in its history.

5-YEAR SHARE PRICE TRAJECTORY FOR VIMPELCOM


Source: https://www.bloomberg.com/quote/VIP:US

The low was $2.99 on January 15, 2016. The share price has since recovered to $4.12, but the company’s market capitalization  is barely ahead of the company’s net debt — $7.2 billion versus $6.7 billion. The company’s latest financials show its fixed-line and mobile telephone revenues are falling sharply, particularly in Russia. 

LetterOne holds 47.9% of Vimpelcom shares. After the Norwegian group Telenor sells its full 24% stake, as planned, it is unclear what Fridman’s remaining stake will be.  To one London stock analyst, “it looks like the non-Russian free-float shareholders will buy the Telenor shares, and Fridman will  be trying to exit Russia by increasing the leverage of his shares, and picking up dividend and loan cash as fast as he can carry the money away.” See, for example.  

Vimpelcom’s Wind unit in Italy was already more profitable than Vimpelcom itself at the close of the third quarter of last year, before the merger with 3 Italia took effect.  The Vimpelcom group results for the September quarter, reported  in November,  reveal that while revenue was contracting in the Russian operations, along with earnings and profits, the Italian operations were up 6% in revenue; up 11% in earnings. In a year’s time, Fridman’s telecommunications company will depend much more on Italy than on Russia for its profitability and share price gain.


CLICK TO ENLARGE
Source: https://www.vimpelcom.com/Global/Files/Reports/3Q16/VimpelCom%20Full%20Announcement%203Q16%20-%20FINAL.pdf

In the Russian telecommunications market, with a current market capitalization of about $7 billion Fridman trails rival  Vladimir Yevtushenkov, whose Mobile TeleSystems (MTS) is listed in Moscow, and currently has market cap of Rb545.4 billion ($9.2 billion). Its share price has been rising, as the blue line of the chart illustrates:

ONE-YEAR SHARE PRICE TRAJECTORY OF RUSSIA’S LEADING TELECOMMUNICATIONS COMPANIES


KEY: blue=Mobile TeleSystems (controlled by Vladimir Yevtushenkov), one-year gain of 29%; yellow=Vimpelcom, gain of 33%; pink=Rostelecom (state), gain of 1%; grey=Megafon (Alisher Usmanov), gain of 15%. Source: https://www.bloomberg.com/quote/VIP:US

The state-controlled Rostelecom has a current market cap of Rb217.2 billion ($3.7 billion), and a relatively stable share price compared to the others. Megafon, listed on the London Stock Exchange and controlled by Alisher Usmanov, has been dwindling until recently; its market cap is now $6.7 billion. Vimpelcom’s volatility compared to its Russian peers reflects the damage which US Government investigations of Fridman’s business practices have done, and continue to do.

Last week Spanish press reports claimed Spanish prosecutors were acting together with the US authorities to investigate bribes alleged to have been paid in Russia to the family of Interior Minister Kolokoltsev (below, left);  a career policeman, he was Moscow’s police commissioner when he was promoted to the Interior Ministry in 2012.

The Spanish authorities are also reported to be investigating an allegedly fraudulent takeover attempt by Vimpelcom of the ZED+ group, which produces games and other data applications for mobile telephones.  ZED+ had been controlled by Javier Pérez Dolset (centre) until an insolvency  administrator, Peter Wakkie (right), was appointed by a Dutch court. 

This month’s Spanish allegation is that Wakkie conspired with Vimpelcom and other Fridman companies to push ZED+ into bankruptcy, and then buy its shares at an artificially low price. Other Spanish shareholders in ZED+ appear to be behind this claim, and also behind reporting by a Spanish online publication, El Confidencial

The Spanish reports allege the bribery and asset raid cases are linked. Reuters claims they are separate – the US, bribery; Spain, the raid on ZED+. The arrest of Wakkie at Madrid airport on January 16, and his release the next day,  have left the allegations against Fridman and Vimpelcom, and their connexion to ZED+, nebulous. 

So far the allegations in the ZED+ case have not been substantiated by a police, prosecution or court statement in Spain, The Netherlands, the US, or Russia. Vimpelcom holds a 5.3% shareholding in ZED+; Fridman has denied knowing Wakkie;  Wakkie claims the charges reported in Spain are “fake” and “unclear”; a Spanish prosecutor is reported as calling him a “liar”.   In the Russian press coverage of the ZED+ case Fridman is the headline name; Kolokoltsev is not mentioned.   

Vimpelcom’s share price was sliding before the Spanish press reports. Madrid’s special prosecutor for corruption cases, José Grinda, is better known for making allegations to the press than for winning  convictions in court; none of his case claims against Russian oligarchs has stuck; for example.  The Spanish trail does confirm Fridman’s pursuit of mobile telephone apps and other data transfer technology which have been Shenkman’s specialty in the US. 

Details of the US prosecution of Vimpelcom for bribery in Uzbekistan, and the terms of its plea bargain agreement, can be read here.  This disclaimer has followed on the LetterOne website: “We require that all our employees and others acting on our behalf demonstrate the highest standards of ethical behaviour when conducting L1 business. Furthermore, our compliance policies, including our Anti-Bribery & Corruption Policy, our Anti-Money Laundering Policy, and our Sanctions Compliance Policy, reflect best practice within the sectors in which we operate.”

The court record Shenkman has been amassing in the US, according to one of the lawyers engaged, “belies every word of Letter One’s undertakings, not to mention the pledges Vimpelcom gave the Justice Department.”

In Washington on February 18, 2016, the Justice Department released this statement of the plea bargain it struck with Vimpelcom to resolve the corruption schemes it has admitted for acquiring mobile telephone assets in Uzbekistan.    The company agreed to pay charges, penalties and disgorgement of profits of $795.3 million.  According to  this “Statement of Facts,”  which US prosecutors required Vimpelcom to accept as part of its guilty plea,  “VIMPELCOM failed to implement a system for conducting, recording, and verifying due diligence on third parties, including joint venture partners, consultants, reseller companies, and suppliers to uncover their true nature, beneficial ownership, and possible corruption risks. Time and again, board members, executives, and employees of VIMPELCOM identified serious concerns with third parties, and VIMPELCOM still failed to undertake adequate due diligence.”

“That sounds like Shenkman,” one of his American creditors comments.

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