Yevroset Ensnared in 2 Investigations

Yevroset faced twin criminal investigations Wednesday, in what an industry source and analysts said appeared to be an attempt to undermine the possible sale of a stake in the country's largest mobile phone retailer.

The Prosecutor General's Office announced that it was investigating whether Yevroset had smuggled handsets into the country and whether a senior company executive had been involved in kidnapping and extortion.

Yevroset co-owners Timur Artemyev and Yevgeny Chichvarkin denied wrongdoing by the company or its executives.

"I know everything that's happening at the company, and nobody at our company has been kidnapping people or involved in extortion," Artemyev said by telephone.

He also denied smuggling, saying Yevroset had successfully defended itself from similar charges in the past and would do so again.

In August 2007, investigators carried out searches at Yevroset and its smaller rivals Dixis and Betalink in connection with a 2005 contraband case opened after police impounded 200,000 handsets at Sheremetyevo Airport.

Yevroset first learned something was wrong late Tuesday when police raided its Moscow headquarters. The search ended around 6 a.m. Wednesday, Artemyev said.

The Prosecutor General's Office, which disclosed the reason for the raid Wednesday, provided scant details about the investigations and did not release the name of the senior executive, whom it said in a statement was suspected of kidnapping, extortion and "arbitrariness." A spokesman for the office's Investigative Committee, Vladimir Markin, said two suspects had been detained.

Several media outlets reported late Wednesday that one of the detainees was Yevroset vice president of security Boris Levin. Artemyev said he could not confirm that Levin was detained but said it was possible because the company could not reach him or his relatives. He denied any wrongdoing by Levin, calling him a "very serious top manager."

Chichvarkin said he suspected illegal corporate raiders were behind the investigations and said he was counting on customer loyalty to keep the company on top. "Our response in the current situation is the people's love, which can't be bought," he told reporters in Novosibirsk.

An industry source familiar with the situation said the investigations might be linked to plans to sell a stake to billionaire Vladimir Yevtushenkov's Sistema, which controls mobile operator MTS. A deal had been expected to be finalized this fall, so the timing of the investigations looks suspicious, he said.

Artemyev declined to speculate on who might be behind the investigations, but he denied that Yevroset was looking to sell a stake. A deal could significantly alter the balance of the cell phone retail market.

"There are a lot of people who'd benefit from it," Artemyev said of a sale. "Yevgeny and I have received a lot of proposals over the years, but we have not accepted any of them so far."

MTS spokeswoman Irina Osadchaya said her company was not interested in acquiring a stake in Yevroset.

Investigators' raids and investigations have long been among the tactics used by unscrupulous businessmen to push down the value of competitors' companies and force their owners to sell. President Dmitry Medvedev said earlier this year that law enforcement and other government officials should stop "terrorizing" businesses.

Some analysts said they were convinced that the investigations aimed to devalue Yevroset ahead of a sale. "It's some kind of pressure for the sale. It's pressure to reduce the price," said Vitaly Kupeyev, a consumer analyst at Alfa Bank.

Alexander Kazbegi, a telecoms analyst at Renaissance Capital, cautioned that the smuggling charges might stick because of the murkiness of the law. "The business of importing handsets has had some questions marks," he said. "We're talking about large quantities of fairly similar products, and there could be questions about customs duties."

But Eldar Murtazin, a senior analyst with Mobile Research Group, said it was almost impossible to smuggle phones these days. "Today, 95 to 96 percent of the market is white," he said. "There is no reason to do it, and there is no possibility to do it."

He suggested that the investigations were a one-off and would not have wider implications for the market. "This is not about mobile phone sellers and importers. This is about the deal between MTS and Yevroset," he said.