Following Kozeny's Money

The Justice Department obtained a federal court order ten days ago against Viktor Kozeny, barring him from touching any of the proceeds from the 2001 sale of his Aspen, Colorado residence (left), amounting now to about $23 million. The government said the funds came from the money laundering offenses alleged in U.S. v. Kozeny, a federal criminal prosecution in New York that includes Foreign Corrupt Practices Act charges. A copy of the restraining order can be downloaded here.

The DOJ sought the order after Kozeny settled a nine-year-old London High Court case last month. Bloomberg has the story here. During the London suit, court orders obtained by the plaintiff, Omega Advisors, Inc., froze $177 million of Kozeny's assets, including the Aspen house. Last month's settlement resulted in the freeze orders being discharged. Omega had sued Kozeny for more than $100 million in damages -- the amount Omega invested in Kozeny's 1998 failed attempt to take over the Azerbaijan state oil company, Socar. Omega lost its investment and, in 2007, paid a civil penalty of $500,000 in an FCPA enforcement action brought because of bribery allegations in the Socar deal.

Czech-born Kozeny has been a fugitive for about a decade. From the Bahamas, he's been fighting extradition to the United States and the Czech Republic. He was indicted in 2003 in a New York state criminal case for stealing $182 million from investors, including Omega and AIG. And in 2005, he and co-defendant Frederic Bourke were charged under the Foreign Corrupt Practices Act for bribing Azerbaijan officials in the Socar privatization. Kozeny hasn't appeared in the case, which is scheduled for trial in June this year.

After Kozeny fled the jurisdiction of the United States, his house in Aspen sat empty. In 2001, a federal judge in Denver allowed the house to be sold, with the proceeds to remain frozen. The buyer, Priceline.com boss Richard Braddock, paid $22 million -- a Colorado record at the time. The money went into an escrow at Wells Fargo for Kozeny's creditors, where it still sits today.

Kozeny bought the "Peak House," as it's known, in 1997 for $19.7 million. It has 24,000-square-feet, five bedrooms and nine bathrooms and sits on Red Mountain, overlooking Aspen. Kozeny threw fancy parties there and hosted investment seminars for his wealthy neighbors. Frederic Bourke, Kozeny's eventual co-defendant in the FCPA case, was a part-time resident of Aspen when Kozeny was there.

The Justice Department's restraining order freezing the "Peak House" proceeds is bad news for Kozeny. Although he's entering his second decade of exile in the Bahamas, it looks like the Justice Department isn't likely to forget about him (or his money) any time soon.

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Bloomberg's David Glovin visited Viktor Kozeny last year in the Bahamas. Glovin's account of their meeting (here) is a great piece of reporting and writing. Here's an excerpt:

. . . The life of a fugitive is tough, Kozeny says during three days of interviews at his $29 million estate in July. "I feel a little like Napoleon sent to St. Helena,'' the 45-year-old Czech native says of his life in the Bahamas, which he hasn't left since 1999.

"Havel was jailed,'' he says of the former Czech president. "People would have laughed if they saw him as a president.'' He rattles off the names of other famous figures who've been imprisoned: "Nelson Mandela. Alexander Solzhenitsyn.'' Kozeny says he plans to clear his own name and run for the European Parliament by 2014.

Prosecutors would like to thwart Kozeny's political ambitions and send him to jail. New York District Attorney Robert Morgenthau says Kozeny stole $182 million from Americans who invested in his 1998 bid to win control of an oil company in the former Soviet republic of Azerbaijan.

U.S. Attorney Michael Garcia in New York says Kozeny offered millions of dollars in bribes to Azeri leaders to cement the acquisition. Czech prosecutors, meanwhile, are presenting evidence to a court that is trying Kozeny in absentia on charges of embezzling $1.1 billion from mutual funds he established in the early 1990s. . . .
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In Bourke's Case, We Stand Corrected

We never forget how many of our readers are real experts in the Foreign Corrupt Practices Act. And how generous they are with their help. It happened again late last week when they asked us to set the record straight in U.S. v. Kozeny. Although we'd posted recently that the prosecution in the Southern District of New York was over as to defendant Frederic Bourke, he and the government are in fact gearing up for a criminal trial. Here's what happened.

In September this year, we reported that Bourke -- indicted in May 2005 with Victor Kozeny and David Pinkerton over an alleged plot to bribe officials from Azerbaijan -- wouldn't face FCPA charges after all. In June 2007, the federal district court in Manhattan dismissed FCPA and related counts against the defendants. The court said the FCPA's five-year statute of limitations had already expired. The government appealed but the Second Circuit affirmed.

But here's what we missed. After Judge Shira A. Scheindlin’s initial decision dismissing charges based on the expiration of the statute of limitations, the government moved for reconsideration, which was granted. Judge Scheindlin then reinstated some of the charges before the issue went up on appeal to the Second Circuit. Thus, the case against Bourke is still pending for trial and has not been dismissed in its entirety.

(In preparing for Bourke's trial, Judge Scheindlin recently issued an opinion and order with a fascinating discussion about the FCPA's local-law defense; we'll talk about it in a separate post.)

So thanks to our friends for helping us out -- yet again.

As for Bourke's two co-defendants, the government dropped David Pinkerton from the case in July 2008. And Victor Kozeny is still fighting extradition from the Bahamas. There, says Bloomberg's David Glovin in a terrific profile and interview, Kozeny is under a Bahamian court order not to leave the island. The "Pirate of Prague," as he's called, spends 12 hours a day at his computer and claims he's broke and misunderstood:

The life of a fugitive is tough, Kozeny says during three days of interviews at his $29 million estate in July. "I feel a little like Napoleon sent to St. Helena," the 45-year-old Czech native says of his life in the Bahamas, which he hasn't left since 1999.

There's lots of great stuff in the story.

Finally, here are some apt words from Andrew Sullivan's article in the November 2008 edition of the Atlantic called Why I Blog:

The blogger can get away with less and afford fewer pretensions of authority. He is -- more than any writer of the past -- a node among other nodes, connected but unfinished without the links and the comments and the track-backs that make the blogosphere, at its best, a conversation, rather than a production.

To blog is therefore to let go of your writing in a way, to hold it at arm’s length, open it to scrutiny, allow it to float in the ether for a while, and to let others, as Montaigne did, pivot you toward relative truth. A blogger will notice this almost immediately upon starting. Some e-mailers, unsurprisingly, know more about a subject than the blogger does. They will send links, stories, and facts, challenging the blogger’s view of the world, sometimes outright refuting it, but more frequently adding context and nuance and complexity to an idea. The role of a blogger is not to defend against this but to embrace it. He is similar in this way to the host of a dinner party. He can provoke discussion or take a position, even passionately, but he also must create an atmosphere in which others want to participate.

Well said.

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Good News For Mr. Pinkerton

A report yesterday from Dow Jones said the United States has dropped its sputtering prosecution of David B. Pinkerton on charges of conspiring to violate the Foreign Corrupt Practices Act.

The government had alleged that in June 1998, as the head of AIG Global Investment Corp., Pinkerton invested about $15 million of AIG's money in a consortium headed by Victor Kozeny -- with the understanding that Kozeny was bribing Azeri officials to ensure the privatization of the State Oil Company of the Republic of Azerbaijan (SOCAR).

Prosecutors last year suffered a double setback in the case. In June 2007, a federal district court in Manhattan dismissed all FCPA and related counts against Kozeny, Pinkerton and their co-defendant, Frederic Bourke, Jr. The court said the FCPA's five-year statute of limitations had already expired. The government appealed, but then in October the Bahamas Supreme Court ruled against Kozeny's extradition, refusing to order his return to the U.S. to face trial. He's from the Czech Republic and reportedly has Irish citizenship, but he's been living in the Bahamas for more than a decade.

Dow Jones said U.S. District Judge Shira A. Scheindlin's order of nolle prosequi dismissing the charges against Pinkerton was signed but hadn't yet appeared in the court's public electronic filing system. The report continued,

In the nolle prosequi request - a copy of which was reviewed by Dow Jones Newswires - Assistant U.S. Attorney Jonathan Abernethy wrote, "Based upon a review of the evidence and information pertaining to this defendant acquired since the filing of the indictment, the government concluded that further prosecution of David Pinkerton in this case would not be in the interest of justice."

No word yet on whether the government will also drop its case against Bourke.

Prosecutors obtained a related conviction in February 2004. Clayton Lewis, a former employee of Omega Advisors, Inc., pleaded guilty to conspiring to violate the FCPA. Then in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000. As the Justice Department noted then, Omega invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. But the program fizzled and Omega lost its entire investment.

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A safe and happy Fourth of July to our American readers. It's easy to be cynical, and somehow "patriotic" has become a slur. That's too bad. Expressing gratitude for the blessings of country and countrymen is always fitting. To be sure, our Republic reflects human nature -- all of it. The flaws and pettiness and insecurities are there, but so are our finest traits. And while Americans from left, right and center are often bothered by the messiness of our great experiment with democracy, we can all be proud that ours is still a country of freedom, opportunity and hope. See you next week.

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Victor Kozeny’s Extradition From the Bahamas Is Denied

The Bahamas News Online Edition (The Bahama Journal) reports today that the Supreme Court there has ruled against the extradition of Victor Kozeny (left). The ruling means Kozeny is no longer under arrest in the Bahamas, which had detained him at the request of the U.S. government. He was indicted in the United States in October 2005 for violating and conspiring to violate the U.S. Foreign Corrupt Practices Act in connection with a scheme to bribe senior government officials in Azerbaijan.

On June 21, 2007, the U.S. District Court for the Southern District of New York dismissed all FCPA and related counts against Kozeny and his co-defendants, Frederic Bourke, Jr. and David Pinkerton, based on the running of the five-year statute of limitations. The Justice Department's appeal against the dismissal is still pending. If the charges are reinstated, only Bourke and Pinkerton will now go to trial.

According to the report, the Bahamas court said the FCPA charges against Kozeny were not provable or prosecutable under local law, and there was an abuse of the court process. Apparently the U.S. government did not properly disclose the U.S. trial court's dismissal of the FCPA charges on statute of limitations grounds, a failing the Bahamas judge cited as a reason for the ruling.

Victor Kozeny is from the Czech Republic. He reportedly has Irish citizenship and has lived in the Bahamas for more than a decade. American prosecutors had sought evidence against him and his co-defendants from the Netherlands and Switzerland. Delays in obtaining the evidence led to the running of the statute of limitations in the U.S. prosecution.

View the report from the Bahamas News Online Edition Here.

View a prior post about Victor Kozeny Here.