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Entries in Omega Advisors Inc. (10)

Thursday
Dec032009

Kozeny Keeps Fighting

Viktor Kozeny, left, the promoter of a failed 1998 plot to take control of the Azeri state oil company during its privatization by bribing the country's leaders, has again asked a court in the Bahamas to block his extradition to the United States. The Czech-born fugitive appeared this week at a hearing to consider an appeal on behalf of U.S. authorities. They want to bring him back to face trial for conspiracy to violate the Foreign Corrupt Practices Act. The appellate judges didn't say when they'll decide the case.

Kozeny, 46, has lived in the Bahamas for about ten years. He was arrested there at the request of the U.S. government in October 2005 and held in prison until granted bail in April 2007. Although a judge ordered his extradition, his lawyers were able to convince another judge to block it (here). The U.S. then pushed the case to the court of appeals.

Kozeny was indicted for the Azeri bribery plot by a federal grand jury in Manhattan in May 2005. His co-defendant, Frederic Bourke, was convicted in July of conspiracy to violate the FCPA and lying to FBI agents. Bourke was sentenced to a year and a day in prison. Others involved in the Azeri scheme have pleaded guilty. Waiting to be sentenced are Thomas Farrell, a director of one of Kozeny's companies, Kozeny's Swiss lawyer Hans Bodmer, and Clayton Lewis, a partner in Omega Advisors, Inc., a hedge fund that invested and lost about $126 million in the Azeri privatization. Kozeny was also indicted in 2003 in a New York state criminal case for stealing $182 million from investors, including Omega, AIG, and Bourke.

Kozeny's lawyer, Clive Nicholls QC, told the appellate court this week that his client shouldn't be extradited. The lawyer said Kozeny committed no crime under Bahamas law, which doesn't reach bribery between third-country nationals. According to a report in the local Tribune (here), Nicholls also said Kozeny was "not a U.S. resident or national at the time the alleged offences were committed and therefore is not subject to the U.S. jurisdiction. He further submitted that when the alleged offences were committed, the Bahamas had not signed onto the Organisation for Economic Co-operation and Development (OECD) anti-bribery convention and also that the alleged offences occurred before the [Inter-American Convention Against Corruption (IACAC)] came into force."

In Kozeny's indictment, the United States said he was subject to the Foreign Corrupt Practices Act because he acted as an agent for U.S.-based investors, known as "domestic concerns" in the FCPA, including Kozeny's own investment vehicle (15 U.S.C. § 78dd-2(h)(1)(A)).

Kozeny is the best-known FCPA fugitive. Bloomberg's David Glovin visited him last year in the Bahamas and wrote a great account of their meeting (here).

Thursday
Oct292009

Make That Sixteen . . .

Foreign Corrupt Practices Act researcher Cody Worthington responded to our post Their Days Are Numbered. To our list of thirteen people waiting to be sentenced for violating or conspiring to violate the FCPA, he suggested we add three more. Here they are:

Joshua Cantor, the president of American Bank Note Holographics. He pleaded guilty in 2001 to a four-count indictment charging him with conspiracy to defraud the U.S., a books-and-records violation, making false statements to auditors, and conspiracy to violate the FCPA. The charges arose from bribes paid on behalf of American Bank Note in Saudi Arabia. Cantor wasn't sentenced as scheduled in 2003. According to his court docket (available here), no new sentencing date has been fixed. Another oddity: despite pleading guilty to four felonies and being out on bail, Cantor travels a lot. Since 2003, he's obtained court approval for trips to Puerto Rico and Israel (twice each), Brazil, Canada, the British Virgin Islands, Spain, the Dominican Republic and Barbados.

Clayton Lewis was a partner in Omega Advisors, Inc., a hedge fund that invested about $126 million in Viktor Kozeny’s Azeri privatization scheme. In an enforcement action against Lewis in 2004, the government said he knew Kozeny planned to bribe Azeri officials but went ahead with Omega's investment anyway. Lewis pleaded guilty in 2005 to violating and conspiring to violate the FCPA. He appeared as a cooperating witness for the government in Frederic Bourke's trial. His sentencing was deferred for the trial and hasn't been rescheduled.

Thomas Farrell worked for Viktor Kozeny in Russia. The American pleaded guilty in 2003 to violating and conspiring to violate the FCPA. Like Lewis, he testified against Bourke. His sentencing was also deferred for Bourke's trial and hasn't been rescheduled.
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Wednesday
Jul012009

More Caribbean Controversy

Tiny Antigua -- the adopted home of Sir Allen Stanford -- isn't the only Caribbean hide-away that's in the news these days for the wrong reasons. There's also its even-tinier neighbor, the Turks and Caicos Islands.

In April, a U.K. report alleged systematic corruption among Turks and Caicos' leading politicians and their friends. Based on the report, the British government announced plans to suspend the territory's political institutions and impose direct rule. It was supposed to happen two weeks ago but a last-ditch lawsuit filed in London to block the move will be decided first, maybe as early as this week.

Turks and Caicos is a British Overseas Territory whose citizens have U.K. passports. Its total population is only around 30,000 but every year 300,000 tourists show up on its beaches. And it's a favorite among privacy-seeking celebrities, said to include Keith Richards, Bruce Willis, Christie Brinkley and Donna Karan, among others.

The London court case was filed by the territory's former prime minister, Michael Misick, who resigned when the U.K. corruption report came out. He says Britain's plan to suspend the constitution and the right to trial by jury would violate the residents' human rights. Misick himself, according to investigators, made millions of dollars since his election in 2003, partly by selling crown-owned real estate and pocketing the money. One of the key witnesses against him has been his estranged wife, the American actress LisaRaye McCoy.

Some locals, however, are accusing the U.K. of grand hypocrisy. The current premier of Turks and Caicos told the Financial Times that because of the expenses scandal in the U.K. parliament, British politicians “no longer have the moral authority to lecture other countries on corruption.” Former premier Misick said, “We have a saying on the island – it is like the pot calling the kettle black. How can you want to dissolve our parliament when you have these problems at home?”

Most politicians in London, according to the Financial Times, dismiss the idea that the MP-expenses scandal has lowered Britain's standing in the world and ability to govern the Turks and Caicos. The MPs themselves are mostly saying they've been victimized by a bad system. But a British diplomat said, “There’s no question that it feels a touch more uncomfortable, whether you are a minister or official, to talk about the importance of good governance or tackling corruption.”

* * *
From Frederic Bourke's Trial. Bourke rested his defense on Tuesday without taking the stand. Closing arguments will be on Monday, July 6, then the case goes to the jury.

This week Bourke’s lawyers kept hammering away at earlier testimony from Hans Bodmer, Viktory Kozeny's former Swiss lawyer. He said he told Bourke about Kozeny's plan to bribe Azeri officials. According to Bloomberg's courthouse-reporter David Glovin here, "Eric Vincent, a lawyer who in 1998 worked for investor Omega Advisors Inc., [on Monday] became at least the third defense witness to challenge Bodmer’s testimony. Vincent said Bodmer never told him Azeri officials were part of the Socar deal, as Bodmer claimed."

Glovin reports that "Bourke denies knowing of the bribes and says Kozeny stole more than $180 million from him and other investors. Azerbaijan, a nation in the Caspian Sea region, never sold [state-oil-company] Socar, wiping out the investment. Bourke, who was once married to a member of the family that owned Ford Motor Co., put up $8 million, including cash from . . . his friend ex-U.S. Senator George Mitchell." Two weeks ago Mitchell testified in the case for four hours. He backed Bourke, saying he trusts him and that they never discussed any bribery.

Bourke's final witness was his "life partner" Megan Harvey. She also said she never heard Bourke talk about any bribery connected with the deal. They knew about Azeri officials investing, she said, but she and Bourke had been told "the Azeris had paid for their stake and that their lawyers had said it was legal." Prosecutors didn’t cross-examine her.

Bourke faces up to 30 years in jail for conspiring to violate the Foreign Corrupt Practices Act, money laundering and lying to federal investigators.

Read David Glovin's reports on the trial here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

We wish our U.S.-based readers a great Independence Day weekend. We'll be back on Monday.
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Monday
May112009

The Bourke Files: Lies, Kickbacks And Other Crimes

In its prosecution of Frederic Bourke for violating the Foreign Corrupt Practices Act by helping Czech-born fugitive Viktor Kozeny bribe Azeri officials, the government plans to call at least two witnesses who have admitted their guilt in the case. Now Bourke is accusing them of committing other, previously undisclosed crimes.

Clayton Lewis was a partner in Omega Advisors, Inc., a hedge fund that invested about $126 million in Kozeny’s Azeri privatization scheme. In an enforcement action against Lewis in 2004, the government said he knew about the bribery allegedly involving Kozeny and Bourke but went ahead with Omega's investment anyway. Lewis pleaded guilty to conspiring to violate the FCPA. He's never been sentenced and almost everything in his court record is sealed. A June 2008 letter from the DOJ said Lewis is a cooperating witness and shouldn't be sentenced until he's testified for the government at Bourke's trial.

Hans Bodmer was Kozeny’s Swiss lawyer who created the corporate entities and trust accounts used to make Kozeny's investments in Azerbaijan. Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the FCPA and to launder money. The court dismissed the FCPA charge, ruling that before being amended in 1998, the FCPA didn't apply to non-U.S.-resident foreign nationals who served as agents of domestic concerns. Bodmer then pleaded guilty to conspiracy to launder money. He's never been sentenced and, with the government's consent, has been living in Switzerland.

Bourke argued in a court filing last week that because the government "controls" the two witnesses, it's obligated to produce evidence in their possession (citing Federal Rule of Criminal Procedure 16(a)(1)(E) and United States v. Stein, 488 F. Supp. 2d 350 (S.D.N.Y. 2007)). The government, Bourke said, has already refused requests for documents held by Lewis and Bodmer.

In seeking evidence from the government's witnesses, Bourke's new lawyer, Harold Haddon, has also launched an attack on their credibility and character. In the court filing, he called Lewis a liar:

In addition to being one of the Government’s key cooperating witnesses, Lewis is also an admitted perjurer. In February 2002, Lewis testified before a New York state grand jury investigating Kozeny’s fraud on his co-investors that he was unaware of any bribery of Azeri government officials. He has since recanted that testimony and told the opposite story to federal investigators—a story that will form the basis of his anticipated testimony against Mr. Bourke. He has also pleaded guilty to a New York state perjury charge relating to his prior testimony. [footnotes omitted]

In a preview of what the jury is likely to hear, Haddon drew a sharp distinction between Lewis and Bodmer on the one hand and Bourke on the other. Lewis, he alleged, took huge kickbacks from Kozeny in return for Omega's investment, and had crucial help along the way from Bodmer. But Bourke, he said, is one of the victims of Kozeny's fraud. Kozeny is accused in a pending New York State criminal case of stealing $182 million from investors. Bourke said he invested and lost $8 million.

 

Haddon said in the court filing:

There is reason to believe that Lewis and Bodmer were also involved in other serious wrongdoing that is not even mentioned in the indictment in this case. Omega, Lewis’s former employer, has alleged in lawsuits in New York and London that Lewis conspired with Kozeny in order to defraud Omega of millions of dollars, and to conceal whatever bribes may have been paid to Azeri officials. In return, it is alleged that Lewis personally received tens of millions of dollars in kickbacks from Kozeny . . .

And Bodmer, Haddon said, is alleged to have been "a key player in this kickback scheme, having created and structured a complex series of offshore entities and bank accounts designed to funnel money to Lewis while hiding the transfers from Lewis’s employer and other investors."

 

The existence of the kickbacks, Bourke's lawyer said, would make Lewis Kozeny’s "handsomely-compensated partner in crime and deception." As to Bourke, "the Government has never alleged—and there is no evidence to suggest—that Mr. Bourke ever received any financial remuneration from Kozeny or his associates. To the contrary, he lost every dollar he invested in the Azeri venture. Why would Kozeny tell an individual investor like Mr. Bourke about bribes while simultaneously paying Lewis tens of millions of dollars to conceal the same information from Omega and the institutional co-investors?"

The government's reaction to Bourke's latest filings will be important. The Justice Department has been slammed lately with allegations of misconduct in other white collar criminal cases and its prosecution of Bourke is clearly aggressive. If Bourke's lawyers believe the DOJ is crossing a line, they'll hope for a sympathetic hearing from the court.

Download a copy of the May 7, 2009 memorandum of law in support of Bourke's motion to compel Rule 16 discovery here.

Part I of this post can be found here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Apr132009

Around The Horn

He wasn't kidding. Last week's record-setting indictment under the Foreign Corrupt Practices Act of six individuals from one company highlights the Justice Department's strategy to target people, not just companies. In September last year, Mark Mendelsohn -- the DOJ official responsible for FCPA criminal prosecutions -- told an audience: The number of individual prosecutions has risen – and that’s not an accident. That is quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail. People have to be prosecuted where appropriate. This is a federal crime. This is not fun and games. See our post here.

* * *
Victims Rights? Congress didn't want prosecutors deciding American foreign policy through FCPA enforcement actions, so bribe-taking foreign officials aren't targeted. Taking that a step further, the names of bribe-takers don't even appear in FCPA complaints. That censorship may make foreign-policy sense, but it's got people in Nigeria upset and frustrated. They want to hear from the Justice Department which of their officials took any of the $182 million in bribes that KBR admitted paying, and where the money is now. Reports are here and here.

* * *
Ask him. Prosecutors think Jeffrey Tesler knows who got KBR's bribe money. They allege he's the middleman who was spreading it around. Tesler, 60, a London lawyer, was indicted in February for violating the FCPA. He now faces up to 55 years in prison. British police arrested him in March at the request of U.S. authorities. Last week, Tesler appeared at his first extradition hearing. The London Magistrates' Court released him on bail and continued the proceedings. Here's a press report.

* * *
An open and shut case. Aluminum Bahrain's federal civil suit in Pittsburgh against Alcoa alleging behavior that would violate the FCPA appears in the docket as "Closed." But not really. The court's order from March 2008 says, "To allow the Government to fully conduct an investigation without the interference and distraction of ongoing civil litigation, it is ordered that this case is administratively closed, to be reopened at the close of the Government's investigation." We talked about the Justice Department's intervention in the case here.

* * *
Where's Clayton? Regarding our post yesterday about Frederic Bourke (here), a reader asked, What's happened to Clayton Lewis? He worked for Omega Advisors Inc. It invested and lost more than $100 million with Viktor Kozeny in the failed Azeri privatization program. The government said Lewis knew about the bribery scheme allegedly involving Kozeny and Bourke but went ahead with Omega's investment anyway. In 2004, Lewis pleaded guilty to onspiring to violate the FCPA. Where's he now? Still waiting to be sentenced. Almost everything in his court record is sealed. But a June 2008 letter from the DOJ said Lewis is a cooperating witness and shouldn't be sentenced until he's testified for the government at Bourke's trial. A copy of the letter can be downloaded here.

* * *
Ashes to ashes? It's off our topic, but creepy. Two Los Angeles-area women allegedly cheated life insurance companies out of at least $750,000 by staging funerals for fictitious people. Last Wednesday, FBI agents arrested Faye Shilling, 60, and Jean Crump, 67, on federal fraud charges. According to the indictment, Shilling, a phlebotomist (a medical technician who collects blood), and Crump, an employee at a now-defunct Long Beach mortuary, cashed in life insurance policies for non-existent people they claimed had died. They allegedly obtained bogus death certificates, purchased burial plots and staged phony funerals to lend credibility to the scheme. When staging the funerals, the women allegedly "filled caskets with various materials" to make it appear they contained actual corpses. The DOJ's release is here.

* * *
Real magic. What is it about Augusta that makes it so special? And this year was the final appearance of three-time champ Gary Player, 73. He showed up 52 times! Our favorite golf story: Gary Player was still on the practice tee, long after sunset, hitting balls. Buckets of them. Someone watching said, "I'd give anything to play golf like that man." Player looked up and said, "Would you really?" And he held out his hands to show the onlooker two bloody, torn-up palms.

* * *
A community effort. Our thanks again to everyone who contributes time and resources to the FCPA Blog. We're thinking of our readers who send suggestions, tips, clips and encouragement. And those who order Bribery Abroad -- sometimes by the dozen. And our wonderful sponsors who stand shoulder-to-shoulder with us every day.
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Sunday
Mar222009

Bourke's Defense Is Revealed, Then Sealed

Bloomberg's David Glovin filed a story Friday (here) reporting that Frederic Bourke will argue that he didn't violate the Foreign Corrupt Practices Act because there were no corrupt payments to foreign officials. Bourke, 62, was indicted in 2005 with Czech-born fugitive Viktor Kozeny, 45, for bribing government officials in Azerbaijan in a failed attempt to take over the state oil company known as Socar.

Bourke's trial on FCPA charges, money laundering and lying to federal investigators is scheduled to start June 1. He could be jailed up to 35 years if convicted on all counts. His co-defendant Kozeny has been a fugitive for about a decade. From the Bahamas, he's been fighting extradition to the United States. He's also wanted by the Czech Republic for allegedly looting a national pension fund.

Glovin learned details of Bourke's defense from a hearing transcript and other documents filed in the U.S. District Court in Manhattan. But after he obtained copies, Judge Shira Scheindlin sealed the documents from public view. Glovin reported, however, that at a December 24, 2008 hearing, Dan Webb, Bourke's lead trial lawyer at the time, said, “It is not clear if there was ever a bribery. Whether or not bribes actually got paid here, I am probably going to be refuting.”

Bourke invested and lost $8 million with Kozeny. The government alleged Kozeny's scheme to bribe Azeri leaders involved giving them vouchers that Azeri citizens could use to participate in privatizations. With $350 million from his investors, Kozeny was supposed to buy enough vouchers to gain control over Socar if it was privatized. U.S. prosecutors allege Kozeny and Bourke gave some of the vouchers to Azeri officials.

Now, though, according to Glovin's story, most of the vouchers can be accounted for. They're in the hands of Gerald O’Shaughnessy, another Kozeny investor who lives in Wichita, Kansas. O'Shaughnessy hasn't been charged in the case. "The documents tell of O’Shaughnessy’s years-long quest to recover the $350 million he and other investors gave Kozeny to buy vouchers," Glovin's story says. "According to the documents, O’Shaughnessy had gained control by 2003 of about three-quarters of the outstanding vouchers. He then sought to force the Azeris to buy them for $350 million so investors could recover their lost stakes, the documents show."

Leon G. Cooperman's Omega Advisors Inc. invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. When the program fizzled, Omega and the other investors lost their entire investments. In 2004, Clayton Lewis, a former employee of Omega, pleaded guilty to conspiring to violate the FCPA in connection with the Kozeny investment. And 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.

In addition to the federal FCPA indictment, New York state prosecutors charged Kozeny with fraud for keeping $182 million of his investors' money.

Bourke -- owner of the luxury handbag brand Dooney & Bourke -- said after his indictment in 2005 that he invested $8 million with Kozeny only after lawyers had advised him the deal was legal. Soon after, he said, he suspected illegal behavior. His lawyers said he traveled to Azerbaijan to warn then-President Heydar Aliyev about the scheme and he testified before a New York grand jury "as a victim of Kozeny's fraud."

Earlier this month, Bourke's lead trial counsel, Dan Webb, withdrew from the case. Bourke brought in new lawyers--Denver-based Harold A. Haddon and Saskia A. Jordan. In a March 6 letter to Judge Scheindlin, Webb said,

Mr. Bourke has requested that the Haddon firm serve as lead trial counsel in this matter and that I seek to withdraw my appearance. Going forward, I will cease to have any involvement in the case. At Mr. Bourke's request, my colleagues at Winston & Strawn will continue their involvement in the case through trial.

Harold Haddon's former clients include John and Patsy Ramsey and Kobe Bryant.

 

Last November, Webb raised the possibility that Bourke's prosecution was vindictive. He asked Judge Scheindlin then to review internal prosecution documents prepared before Bourke was charged. "The documents may show," Webb said, "whether prosecutors brought the case to punish Bourke for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago."

A copy of the 2005 indictment against Kozeny and Bourke can be downloaded in two parts here and here.

A copy of Dan Webb's March 6, 2009 letter to Judge Scheindlin seeking to withdraw from the case can be downloaded here.

Read all posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Feb232009

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.

* * *

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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Sunday
Aug312008

Kozeny's Co-Defendant Wins Appeal

Frederic Bourke won't face Foreign Corrupt Practices Act charges after all. He was indicted in May 2005 with Victor Kozeny and David Pinkerton over an alleged plan to bribe officials from Azerbaijan from 1997 to 1999 in connection with the privatization of the state oil company. But the U.S. Court of Appeals for the Second Circuit affirmed the June 2007 dismissal of FCPA charges against Bourke, saying the government failed to indict him within the FCPA's five-year statute of limitations.

Kozeny wasn't a party to the appeal because he's outside the United States and fighting extradition. In October 2007, the Bahamas Supreme Court refused 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. 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.

Co-defendant Pinkerton was dropped from the case in July this year after the government withdrew all charges against him. See United States v. Kozeny, No. 1:05-cr-00518-SAS (S.D.N.Y. July 2, 2008) (order of nolle prosequi). The former head of AIG Global Investment Corp. invested about $15 million of AIG's money with Kozeny. After the government ended the case against Pinkerton, his lawyer said, "We have always known that David Pinkerton is completely innocent of any wrongdoing and we are thrilled by his vindication. Mr. Pinkerton is a self-made man who through his hard work, integrity and talent rose to the highest levels of his profession. Now that these charges have been entirely dismissed, Mr. Pinkerton looks forward to continuing his career."

Prosecutors obtained a related conviction in the case 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. Omega invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. The program fizzled and Omega lost its entire investment, as did Bourke, AIG and others. Reports said Kozeny kept $182 million from the deal.

Bourke, 62 -- owner of the luxury handbag brand Dooney & Bourke -- said after his indictment in 2005 that he invested
$8 million with Kozeny only after lawyers had advised him the deal was legal. Soon after, he said, he suspected illegal behavior. His lawyers said he traveled to Azerbaijan to warn then President Heydar Aliyev about the scheme and he testified before a New York grand jury "as a victim of Kozeny's fraud."  

Last month, a Washington-based non-profit watchdog group that defends whistleblowers alleged that James Wolfensohn, the former head of the World Bank, helped Kozeny by quashing staff concerns and writing letters on Kozeny's behalf. Wolfensohn has said the report by the Government Accountability Project (GAP) is wrong.

On its website, GAP says,

The report shows that James Wolfensohn, then president of the World Bank, personally assisted a rogue financier in his efforts to gain control of the State Oil Company of the Republic of Azerbaijan (SOCAR). While these efforts were ultimately unsuccessful, documents show that Wolfensohn silenced Bank staff members who spoke out about corrupt government officials working with Viktor Kožený, a notorious financial operator who had allegedly defrauded investors in the Czech Republic of nearly $1 billion only three years earlier.
“Before the financial fiasco in Azerbaijan occurred, Bank staff tried to expose the risks inherent in dealing with Kožený and corrupt government officials poised to profit illicitly from Caspian oil,” said Bea Edwards, GAP International Program Director and author of the report. “They were silenced about the impending fraud, however, when Wolfensohn directly intervened on Kožený’s behalf.”

A Bloomberg story said Bourke's lawyers provided documents to GAP and that Bourke funded the Kozeny-World Bank report. GAP says Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded . . . ." Kozeny has denied taking money illegally from investors and criticized GAP for its work on Bourke's behalf.

 

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Wednesday
Jul022008

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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Wednesday
Aug222007

Prosecutors Appeal Dismissal of FCPA Charges Related to Azerbaijan

The press is reporting that the Department of Justice on August 21, 2007 appealed the dismissal of FCPA charges against three men in connection with a bribery scheme in Azerbaijan.

On June 21, 2007, the U.S. District Court for the Southern District of New York dismissed all FCPA and related counts of an indictment against Viktor Kozeny, Frederic Bourke, Jr. and David Pinkerton. The District Court said the statute of limitations had run. The Justice Department argued that the five-year limitations period should be tolled based on the government's official requests for foreign evidence from the Netherlands and Switzerland.

The October 2005 indictment accused the three in a scheme to bribe senior government officials in Azerbaijan in order to ensure the privatization of the State Oil Company of the Republic of Azerbaijan ("SOCAR").

On July 6, 2007, hedge fund Omega Advisors, Inc. acknowledged that Clayton Lewis, one of its former employees, had learned, prior to Omega’s investment in the privatization of SOCAR, that Kozeny had entered into arrangements with some officials of the government of Azerbaijan that gave those officials a financial interest in the privatization. Lewis pleaded guilty on February 10, 2004 to conspiracy to violate the FCPA .

Omega entered into a settlement agreement with the DOJ and will not be prosecuted for any crimes related to its participation. Omega civilly forfeited $500,000 and agreed to continue to cooperate with the Government in connection with its investigation and prosecution of the case.

As a postscript, the DOJ noted that Omega invested more than $100 million in the Azeri privatization program in the spring and summer of 1998 and lost all of its investment, and to date privatization has not occurred.

View A Press Report of the Government's Appeal Here.

View the DOJ's Announcement of the Omega Settlement Here.

View the DOJ's Announcement of the Indictment Against Kozeny et al Here.