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. Last Updated: 07/27/2016

IPOC Files Racketeering Lawsuit Against Alfa

MTAlfa Group head Mikhail Fridman
IPOC, the Bermuda mutual fund linked by a Swiss tribunal to IT and Communications Minister Leonid Reiman, has filed a racketeering suit against Mikhail Fridman's Alfa Group in a U.S. court in an increasingly vicious fight over the Russian telecoms industry.

The RICO suit claims that Fridman, as head of Alfa Group, together with Alfa Bank CEO Pyotr Aven, entered into a criminal conspiracy to steal a stake in the country's No. 3 mobile firm, MegaFon, through "a daisy chain" of "sham transactions."

It claims Alfa sought the 25.1 percent stake, which had already been contracted to IPOC, as part of an attempt to take over "a significant portion of the Russian mobile telecommunications industry." The suit, filed late Thursday in the U.S. District Court for Southern New York, says Alfa engaged in bribery and wire fraud to steal the stake and laundered the proceeds through accounts in U.S. jurisdictions.

A spokesman for Alfa's telecoms arm on Monday rejected IPOC's lawsuit as being "absolutely without any legal grounds."

"This is merely an attempt by the IPOC fund to save face after losing in all jurisdictions in the MegaFon case," the spokesman, Kirill Babayev, said Monday. Fridman and Aven could not be reached for comment over the long holiday weekend.

The lawsuit ups the ante in a vicious battle for supremacy over the nation's telecoms industry that pits Fridman's Alfa, a politically wired oil-to-telecoms industrial group that owns No. 2 mobile phone company VimpelCom, against IPOC, which has laid claim to the 25.1 percent stake in MegaFon and owns other assets in the telecoms industry, including St. Petersburg-based Telekominvest. Both IPOC and Alfa are vying for Svyazinvest, a prized fixed-line telecoms asset, which is due to be privatized later this year.

During the standoff, which began when IPOC sued Alfa in the British Virgin Islands over what it said was Alfa's fraudulent acquisition of the MegaFon stake in 2003, Alfa has accused Reiman of being behind IPOC.

In courts in the British Virgin Islands and in tribunals in Switzerland and Britain, Alfa has defended its rights to the stake by arguing that IPOC gained the initial rights to an option on the stake fraudulently. It claimed that the hidden owner of IPOC was Reiman, and that, as a state official, he abused his position to bolster his own holdings in the telecoms industry.

IPOC's New York lawsuit also claims that Alfa engaged in insider trading in U.S.-traded VimpelCom shares and dredges up a slew of other corruption allegations from Alfa's past.

The IPOC counterattack comes after a Zurich tribunal last month awarded the rights to the MegaFon stake to Alfa.

The three-judge private commercial tribunal found after two years of hearings that Reiman was IPOC's owner and had abused his position as a state official to dilute the state's stake in CT Mobile, a mobile firm that later formed the backbone of MegaFon. Courts in the British Virgin Islands and London threw the case out because of a lack of jurisdiction.

Reiman has repeatedly denied the charges. Evidence seized during investigations by German prosecutors in Liechtenstein forced IPOC's board earlier this year to drop its claims that a Danish lawyer, Jeffrey Galmond, was its sole beneficial owner. But Galmond still insists that IPOC is his. Galmond was Reiman's lawyer in the early 1990s.

IPOC's latest lawsuit raises the stakes in one of the widest-ranging legal battles in Russia's recent corporate history. Tens of millions of dollars have been flung at lawyers and private investigators, and spent on encryption devices, tapping phones and even on secretly taping a meeting between Galmond and another telecoms executive.

As well as highlighting the aggressive tactics employed by Alfa and IPOC, the case has also raised questions about why President Vladimir Putin has remained silent on the matter. Reiman made his way in the St. Petersburg telecoms industry while Putin, as the city's deputy mayor, signed off on some of his deals.

Reiman has held on to his position as minister despite a rising tide of allegations against him. During German investigations, bank memos were seized that named him as a beneficiary of IPOC and of associated funds. Galmond has said the memos were written in error.

"This is part of an internal Kremlin battle," said Kremlin-linked political consultant Sergei Markov. The U.S. court case "shows the escalation of the conflict between the clans," he said.

"The old oligarchs -- Khodorkovsky, Berezovsky and Gusinsky -- have been liquidated. Now the fight has moved to a different field. It is inside the Kremlin."

The New York lawsuit came as a Bermuda court late Thursday issued an injunction against any of IPOC's principals pursuing court action to seize Alfa's MegaFon shares. The ruling could prevent IPOC from challenging Alfa's ownership of the MegaFon stake in a St. Petersburg court. A spokesperson for IPOC said Friday that the fund would challenge the injunction, which was issued without any IPOC representatives present at the Bermuda hearing.

A lawyer for IPOC, W. Gordon Dobie of Winston & Strawn in New York, said in a statement Friday: "The complaint alleges that the racketeering and other wrongs ... hurt U.S. investors, U.S. taxpayers and U.S. financial markets."

The IPOC lawsuit centers on a series of transactions in summer 2003 in which the head of financial boutique LV Finance, Leonid Rozhetskin, who is also named as a defendant in the case, sold the company's stake in MegaFon to Alfa despite having already given option rights on the stake to IPOC.

IPOC claims it had paid for the shares and honored all the terms of the option agreement, that Rozhetskin sought to gain more money from Galmond and IPOC for the stake, and that Rozhetskin then entered into a conspiracy with Alfa to spirit the stake out of IPOC's reach to nine offshore companies it says were linked to Alfa.