Russian Prosecutors Freeze Billions in Oil Company Stock
By STEVEN LEE MYERS and ERIN E. ARVEDLUND
Published: October 30, 2003
OSCOW, Oct. 30 — Prosecutors froze today billions worth of stocks in Russia's richest company, Yukos Oil, starkly raising the stakes of their investigation of its chief executive, Mikhail B. Khodorkovsky.
The Prosecutor General's Office announced its action — by far the largest freezing of assets here in a criminal case — even as President Vladimir V. Putin met with major foreign investors to outline his strategy for developing confidence and transparency in the country's financial markets.
The evening meeting appeared to be Mr. Putin's effort to calm the political and economic turmoil that has roiled Russia since Mr. Khodorkovsky's arrest five days ago. The freezing of a large part of Yukos shares did the opposite, sending the country's already reeling markets plunging still further.
The prosecutors announced in a statement that a court had granted their request to freeze more than 1.2 billion shares — worth some $14 billion at the start of the day, $12 billion by the end — that are owned by Mr. Khodorkovsky and his close partner, Platon Lebedev, who was arrested in July.
They did so citing a provision in Russia's criminal code that allows for the seizure of assets "if there are reasons to believe that it was received as a result of criminal actions."
Mr. Khodorkovsky and Mr. Lebedev are both in prison, accused of fraud, tax evasion and other crimes, but neither has been formally charged. Nevertheless, Russia has effectively locked up much of the personal fortunes of both men, prohibiting them from cashing out their stocks.
Yukos still has control of the company and its operations, but the latest twist in an investigation that has lasted months stunned and angered executives at the company's sleek corporate headquarters in Moscow. It came on a day when its board of directors announced it would pay shareholders $2 billion in dividends, the company's largest ever and a sign of its successes.
One official associated the freezing with the events of Stalin's terror in 1937. Steven M. Theede, the American who has stepped in as acting chief executive, responded in a more measured way.
"We're still assessing what happened," he said in an interview shortly after today's step was announced. "The shares can still be voted and there is no change in control."
The longer-term ramifications of today's step remain unclear, but it signaled prosecutors' intent to seize some or all of Mr. Khodorkovsky's and Mr. Lebedev's wealth as penalties if they are convicted. Mr. Khodorkovsky has been accused of cheating the government of $1 billion in taxes.
A spokeswoman for the Prosecutor General, Natalya B. Vishnyakova, emphasized in televised remarks that the freezing of the shares did not represent the "confiscation or nationalization" of Yukos assets. Nonetheless, Mr. Putin's government could in theory end up with a large stake of the company to sell to whomever it wants, if prosecutors prevail in court.
The investigations swirling around Yukos have been widely depicted as a struggle between two factions in the Kremlin and in the country: one represented by economists and businessmen who favor a liberal market economy versus another represented by former security veterans, like Mr. Putin, who favor a strong state role in business and other parts of society.
Mr. Khodorkovsky's arrest — and reports that Mr. Putin's chief of staff and the leading proponent of an open economy, Aleksandr S. Voloshin, was resigning in protest — have led many analysts to conclude that the struggle is being won by K.G.B. veterans.
Otto R. Latsis, a prominent economist and political commentator, said the freezing of assets underscored the true motivation of the investigation, which was not simply to silence a political critic, but reassert the state's dominance of a company that had vocally pursued its own interests, at home and abroad.
"The persistence with which every thing has been done shows that now the ultimate goal is clear," he said. "The people who are doing this want to transform Russia from a purely market economy to some form of state capitalism, like in China, where the state controls the economy. The theory is fashionable here."
Even so, Mr. Putin's efforts to maintain a balance between the two factions were on display today.
In remarks shown on state television from his meeting with foreign investors, Mr. Putin spoke of the need to hone the country's financial laws to protect minority shareholders, to increase transparency of transaction and to more effectively settle business disputes short of arbitration courts.
Mr. Putin acknowledged that his government had a long way to go, but that he was committed to open markets. "We understand this is not a simple process," he said. "We continue to work in this direction."
Russia's key stock index, the R.T.S., fell more than 8 percent. Yukos shares fell nearly 14 percent. Some investors, inured to the wild fluctuations of Russia's markets, tried to play down the significance of today's plunge. "The headline is far worse than the reality," said William F. Browder, the director of Hermitage Capital, the largest equity investor in the Russian market.
But the latest events clearly rattled others and erased billions of market value. Since Mr. Khodorkovsky's arrest, the R.T.S. Index has lost 16.5 percent of its value. Yukos has lost 28 percent of its value on the R.T.S.
"It is now obvious that the investigations will materially affect Yukos as a company, and not just be confined to individual shareholders," the investment bank Aton in Moscow wrote in a note to clients this evening. "And we do not see how it will ever be business as usual for Yukos, even if Khodorkovsky is released."
The prosecutors placed a freeze on Yukos shares held by two off-shore companies of Group Menatap, a financial holding company largely controlled by Mr. Khodorkovsky and Mr. Lebedev. They are Hulley Enterprises in Cyprus, which owns 1.14 billion shares, and Yukos Universal Ltd., which owns 49 million. Prosecutors originally announced that they had frozen 53 percent of Yukos stock — a majority — but the company said the shares amounted to only 44 percent. |
