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. Last Updated: 07/27/2016

Americans Hit With Fraud Suit




A Russian titanium factory has brought suit against billionaire international investor Kenneth Dart, Harvard lawyer Jonathan Hay and others for embezzling and money laundering, according to court papers filed this week in a U.S. court.


Perm region-based Avisma, a factory that processes titanium and magnesium, citing U.S. laws on racketeering and corruption, is seeking $200 million in compensation and punitive damages from Dart, Hay, and other plaintiffs, according to a statement from Avisma and photocopies of relevant court papers the company faxed to The Moscow Times.


The court papers allege the plaintiffs took over "operation of an ongoing fraudulent scheme, first devised and implemented by a Russian bank called Menatep, to bilk Avisma of its profits."


Menatep is not named as a plaintiff in the suit, which was filed Thursday in New Jersey district court. The Moscow Times received documentation of the case late Friday, and appropriate officials at Menatep could not bereached for comment.


Officials contacted at Dart's offices late Friday said they knew nothing about the lawsuit.


"We are sure we have done nothing wrong," said Dart Management spokeswoman Sharon Cornwell. "We are unclear what charges were brought against us."


Dart, a billionaire who built his fortune in the foam-cup business and then gave up his U.S. citizenship to save on taxes, has earned a reputation in Russia as a vehement defender of shareholder rights.


He has battled with oil majors Sibneft and Yukos - the latter controlled by Menatep founder Mikhail Khodorkovsky - over what he has called unfair treatment by those companies of minority shareholders.


Hay worked in Moscow for the Harvard Institute of International Development, on a U.S. Agency for International Development-funded contract to advise the Russian government on economic policy-making.


He and a colleague, Harvard economist Andrei Shleifer, are now under federal investigation over allegations that they profited from investments made in the Russian stock market HIID was helping set up.


A USAID investigation has concluded that Shleifer and Hay had gained influence over the Russian capital markets they were helping to create and had "abused the trust of the United States government ... for private gain."


In June 1997, USAID cut off all of the Harvard project's funding at the request of the Russian government.


But Hay and Dart have never been linked until now.


The Avisma lawsuit targets Dart first, but lists Hay as the second plaintiff and states that he "operates and controls" Dart Management Inc. from its New Jersey offices.


Hay could not be located for comment Friday.


Other plaintiffs include Dart Management employees Michael Haywood and Michael Hunter, and Francis Baker, chairman of the Anderson Group.


Andersen Group is described only as being registered in Delaware and having worked with Dart Management at Avisma, a titanium-magnesium producer with annual sales of around $150 million to $180 million. Last year, the company posted a profit of $37.9 million.


According to the court documents, Avisma's woes began in late 1995, after "Menatep obtained a controlling interest in Avisma and then induced Avisma to sell titanium sponge and other products at below-market prices to offshore companies, who resold the Avisma products on the international market and kicked back the resale profits to Menatep."


The documents state that Menatep also induced Avisma "to purchase raw materials at inflated prices from the offshore companies, with profits again funneled back to Menatep."


"Menatep diverted millions in profits from Avisma in that manner but, in 1997, opted to sell its interest in Avisma - and turn over the machinery of the ongoing fraudulent scheme, including the offshore conduits, in a kind of 'turnkey' transaction - to the Defendants."


Last year, Russia's largest titanium producer, VSMPO, took over Avisma in a public offering swap.


The court papers state that VSMPO "curtailed the [fraudulent] scheme."


The court papers include a photocopy of a letter dated Jan. 27, 1999, apparently written by the Anderson Group's Baker to the company lawyer. The court papers do not say how this letter was obtained.


In it, Baker writes, "We appear to have run into an immense Russian bank money-laundering scheme in the Isle of Man - clearly a criminal matter. However, not being social reformers, our objective is to get the money due to us, clear the Avisma accounts and proceed to other matters."


Avisma's lawyers said Friday they were girding themselves for a long legal battle.


"If the case goes to trial, litigation could take a year or a year a half," said Bruce Marks, a partner with legal firm Egorov, Puginsky, Afanasiev & Marks, in a telephone interview from Philadelphia. Marks' company is representing Avisma.


According to the court papers, Baker and Hay both "made veiled threats to attempt to remove present counsel for VSMPO and Avisma."


In Russia, Dart continues a drawn-out fight against oil giant Yukos, which diluted his stakes in subsidiary oil production companies such as Yuganskneftegaz and Tomskneft.


On Aug. 18, Dart lost suits in the Khanty-Mansiisk and Tomsk courts. The judges said Dart's complaints about unfavorable treatment at Yuganskneftegaz and Tomskneft were unsustainable.