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By John Helmer, Moscow

Victor Pinchuk (right top) is the Ukrainian oligarch who last month hosted Bill Clinton, Hillary Clinton, Tony Blair, Dominique Strauss-Kahn and other political wannabes or has-beens, to promote himself as the champion of Ukrainian independence. This week he stands in the UK High Court charged by two other Ukrainian oligarchs with bribery, corruption, theft of state assets, election-rigging, racketeering, extortion, embezzlement, fraud, conspiracy, and perjury, compounded by nepotism and sex with the only child of ex-President Leonid Kuchma (left). Holy Moly!

Russia is the frying pan from which the Ukraine is now trying to escape, Pinchuk and his celebrity guests agreed last month. But the fire into which Pinchuk is now committing his country is so flaming hot, it’s a wonder men with impulse-control problems like Clinton and Strauss-Kahn would wish publicly to endorse it, let alone a presidential candidate like Hillary Clinton trying to raise money for her race to succeed Barack Obama. For campaign reasons the two Clintons have been dissociating themselves from Kuchma’s record for years. But they have been taking Pinchuk’s money, and he is insisting it’s payback time.

Pinchuk’s timing is awkward. For the past six months he has put himself in the London dock with a claim that Gennady Bogolyubov and Igor Kolomoisky owe him an unspecified amount of money for shares in an iron-ore mining complex called Krivorozhskiy Zhelezorudnyy Kombinat (KZhRK). The claim was filed in the High Court this past March. The alleged deal was done between 2004 and September 4, 2006. Pinchuk claims he paid the duo cash, but they kept the KZhRK shares to themselves before reselling them to another Ukrainian oligarch, Rinat Akhmetov. “Mr Pinchuk”, according to his Particulars of Claim, “duly paid the full US$143 million but the asset was not transferred to him.” That story can be read here.

Together, Bogolyubov and Kolomoisky own the PrivatBank group, one of Ukraine’s largest conglomerates, and Ukrnafta, the leading oil and gas producer in the country. Separately, Bogolyubov owns Consolidated Minerals, a manganese and ferroalloy producer; Kolomoisky, aviation companies. Behind steelmaker Akhmetov, they are the three wealthiest business figures in the country. The net worth of Pinchuk’s steel pipe business used to rank him in their company, but no longer.

Pinchuk has asked the court to adjudicate in his favour, and award him the KZhRK shares, or their money value now; the income he might have earned if he had owned the shares for the past seven years; damages; interest, and costs. The quantum is probably ten times his purported outlay. With current indebtedness of more than $1 billion, dwindling cashflow, a default warning from Fitch Ratings, and insufficient cash in the bank to pay an Italian invoice for €26 million ($35.4 million), Pinchuk’s business is desperate for the new money; especially so, since international bankers he has recently approached say they won’t lend him more. The High Court is the payday lender of last resort for Pinchuk; read his 23-page prospectus here.

Bogolyubov and Kolomoisky have now filed separate defences in the High Court. The first runs to 17 pages; it was composed by Mark Howard QC, backed by Skadden Arps; the second is 46 pages long, and was written by Laurence Rabinowitz QC with Freshfields. Howard was on the side of Mikhail Chernoy (Michael Cherney) against Oleg Deripaska in the High Court a year ago; this settled out of court. Rabinowitz was on the losing side for Boris Berezovsky in his High Court claim against Roman Abramovich.

Read Bogolyubov’s dossier; and Kolomoisky’s.

The case presentation and evidence are complicated; so much so that it has proved too hard for the Financial Times’s court reporter Jane Croft to analyse or quote. The FT’s Ukrainian correspondent, Roman Olearchyk, has other reasons for taking Pinchuk’s side; while the paper’s columnist Mrs Moneypenny was on a junket to the Pinchuk-Clinton love-in last month, and admits she owes Pinchuk a favour.

The Wall Street Journal was on board Pinchuk’s motor yacht in Venice in July, and hasn’t come ashore for long enough yet to read the new court files.

Bogolyubov and Kolomoisky say there is no evidence of anything like the agreements Pinchuk claims for the sale and purchase of KZhRK. The duo say there were meetings in various places and at various times, some of which Bogolyubov didn’t attend at all. Pinchuk’s version of the oral record is disputed by witnesses who include a well-known rabbi.

According to Kolomoisky, such documents as were negotiated between the duo and Pinchuk concerned other assets engaged in the production of manganese and ferroalloys, not iron-ore. Those documents don’t mention KZhRK. The duo accuses Pinchuk and his lawyers of pulling a fast one on the court, adding an asset claim for which there is no paper record. “There was no such agreement [for KZhRK]”, Kolomoisky says. “As one would expect in relation to assets worth many hundreds of millions of dollars, the creation of the Ferroalloy Holding was the subject of a suite of detailed written agreements…those agreements make no reference whatsoever to any transfer of KZhRK shares to the Claimant [Pinchuk].”

According to Bogolyubov, Pinchuk “had no legitimate commercial bargaining position to cause either of the defendants to agree to acquire shares in KZhRK or transfer shares to him once acquired.” Pinchuk was a standover man, Kolomoisky argues, “repeatedly exploit[ing] his relationship with President Kuchma and his resulting influence over Ukrainian state-owned assets as a form of leverage to achieve his own financial and commercial objectives.”

Pinchuk’s scheme for KZhRK was criminal, this week’s London court papers say. Allegedly, he arranged with Kuchma and the Ukrainian state property agency to set an artificially low tender price for the sale of the state’s shares in the asset — $46 million compared to a market value of about $130 million – “in the hope he would subsequently be able to benefit from a sale at such a low price.” Pinchuk allegedly told Akhmetov in a telephone-call to threaten Kolomoisky that unless he and Bogolyubov agreed to buy the KZhRK shares from the government on behalf of Pinchuk, and kept his interest secret, Pinchuk would arrange with Kuchma to veto the legislation implementing the privatization. The duo decided they had to string Pinchuk and Kuchma along, avoiding a deal for KZhRK “until (at least) President Kuchma’s departure from office and the Claimant’s [Pinchuk’s] loss of influence.”

To sweeten Kuchma, Bogolyubov charges that Pinchuk demanded secret payments for a slush fund to finance Kuchma’s election expenses. In November 2002, Bogolyubov claims, Pinchuk proposed a scheme of monthly payments of $5 million, which would go into a “Special Fund”. The money was demanded as part of a related scheme to influence Kuchma’s power over the state’s 50% shareholding in Ukrnafta. With the duo holding 40% of this enterprise at the time, Pinchuk is charged with trading Kuchma’s support for their operational takeover of Ukrnafta. The kickback was $5 million per month into Kuchma’s pocket, and for Pinchuk himself “50% of the profits derived from the business of Ukrnafta net of these monthly payments.”

Again according to Bogolyubov, between April 2003 and September 2004 “the Defendants caused a total of USD100 million to be paid to companies owned or controlled by the Claimant [Pinchuk] for onward payment to the Special Fund setting up Share Purchase Agreements as a mechanism pursuant to which the Defendants would transfer those sums of money to disguise the reason for the payments.”

In October 2004 the court papers claim the duo discovered the $100 million hadn’t been reaching Kuchma’s special fund. Bogolyubov says he believes Pinchuk “kept the money for himself”. Whether he shared it with his wife, or concealed it from her and her father isn’t made clear.

Pinchuk’s evidence that he put two deposits adding up to 689.4 million Ukrainian hryvnias ($138.1 million) in the duo’s Privat Bank is dismissed by the duo because the cash was on quick-draw deposit “which could be withdrawn at any time.” The money wasn’t used as payments for KZhRK shares, they say in response to Pinchuk’s claim.

The Brooklyn rabbi, Shmuel Kaminetsky, makes a cameo appearance in the court papers when he was witness to a telephone call on March 15, 2005, between Pinchuk and Bogolyubov. According to Pinchuk’s version, Bogolyubov told Pinchuk in front of Kaminetsky that the shares Pinchuk wanted in KZhRK would be sold to him if he paid $143 million. According to Bogolyubov’s version, he and Kaminetsky were in Jerusalem at a museum opening, when the call came in. Pinchuk spoke to the rabbi, but Bogolyubov says he neither spoke to Pinchuk directly, nor gave the rabbi any buy-sell undertaking to relay to Pinchuk.

In sum, claims Bogolyubov, despite years of negotiating terms and conditions over many of Ukraine’s most valuable natural resources, terms were never agreed with Pinchuk for KZhRK, and “there are no implied terms arising from non-existent express terms”.

What, readers who have reached the age of consent may ask, has sex got to do with all this contentious and expensive lawyering? According to Bogolyubov’s brief, “from 1997 the Claimant has had a relationship with Elena Franchuk (the daughter and only child of Mr Kuchma) whom he married in 2002.” Kolomoisky’s lawyers word the relationship more explicitly: Pinchuk and Mrs Franchuk, Elena’s first marriage name, “cohabited” for five years, but didn’t tie the knot until 2002. 1997 was the year that Elena’s first marriage with Ukrainian politician Igor Franchuk ended. Pinchuk had also been married before.

pinchuksEleven years later there’s no doubt Pinchuk and Kuchma’s daughter are the loving couple they pledged in their marital vows. So even if a bit of slap-and-tickle went on between 1997 and 2002, what possible bearing could that have on this case? The answer, according to Bogolyubov and Kolomoisky, is that with, through, and because of his wife, Pinchuk was able to manipulate the duo into accepting schemes of illegal favour-seeking and corrupt favour dispensing.

Pinchuk has now put himself, his wife and ex-President Kuchma on trial in London with more evidence on the history of Ukrainian business than has ever presented itself for cross-examination and judgement before. For information on what exactly has gone on in the second Mrs Pinchuk’s back yard, read this.

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