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Former associate attacks Evraz actions
[January 08, 2007]

Former associate attacks Evraz actions

(Oregonian (Portland, OR) (KRT) Via Thomson Dialog NewsEdge) Jan. 8--Evraz Group, the Russian steel maker that might receive regulatory approval as soon as today to buy Oregon Steel Mills Inc., has gone to great lengths in recent years to woo the Western business world.

It openly courted investors on the London Stock Exchange in 2005. Now, it's vying for assets in the world's cradle of capitalism, the United States.

But a man who claims to have done business with Evraz and its co-founder, Alexander Abramov, paints a far-from- rosy picture of the company's brief history.

In several U.S. lawsuits and an interview with The Oregonian, the former associate, Jalol Khaidarov, accuses Evraz and other prominent Russian businessmen of laundering money through U.S. shell companies, sending armed thugs and a mob figure to threaten his life and manipulating bankruptcy proceedings to wrest control of a mine that Khaidarov co-owned.

An Evraz spokeswoman has denied the allegations, saying the men accused of illegal behavior in the lawsuit "never controlled" Evraz.

Khaidarov's lawsuits, while so far unsuccessful, attempt to link Evraz to the corrupt and sometimes violent industrial business dealings that have besmirched Russia and Eastern bloc nations since the fall of communism.

But it's unclear whether the claims, which garnered news coverage in Russia and Europe, are true or even relevant to U.S. regulators reviewing the deal for national security concerns, a process that could end today.

Some observers argue that the allegations mean little to Oregon Steel shareholders and workers trying to judge the merits of Evraz's offer and ownership, despite the fact that Khaidarov and others suspect the deal could eventually lead to Kremlin control of the Portland company.

"These cases have been going on against many of the oligarchs for many years because there was a lot of very fast dealing," said Daniel Lucich, a former deputy assistant treasury secretary now with the Washington, D.C., law firm of Akin Gump Strauss Hauer & Feld. "It's not clear that all of this was illegal at all. It really takes a case-by-case analysis to really know what's going on."

The suits in Delaware list five companies and four Russian businessmen as defendants, including two well-known oligarchs and one controversial figure in the aluminum industry tied in news reports to organized crime.

"Evraz generally has a horrible reputation in Russia," Khaidarov said in an interview Thursday from his home in Israel. "What they're doing now," he said, speaking through an interpreter, "is they're trying to create a good reputation. That's the reason they went ahead with IPOs. That's why they're going to the United States."

"These guys are people who engage in fraud or criminal conduct," said Bruce Marks, a Philadelphia attorney who practices in Moscow and brought the lawsuits. "They don't belong in the United States, owning sensitive businesses."

But Bruce Bean, a former corporate attorney in Moscow, accused Marks of grandstanding, saying judges will probably never allow Khaidarov's allegations to be heard in the United States, where few of the alleged illegal events occurred.

"It is a well-known story, but I don't think it means anything," said Bean, now a law professor at Michigan State University. Marks' "lawsuit is useless except for generating publicity and negative impact in Washington."

In an e-mailed statement, Irina Kibina, vice president of corporate affairs and investor relations at EvrazHolding, said the cases appear to be mostly about individuals who never owned Evraz.

"Evraz management believes that Evraz (as well as other defendants) have strong position to win the case and get injunction banning similar claims by the plaintiffs in other jurisdictions," Kibina wrote.

The Russian mine at issue in the Delaware lawsuits is the Kachkanarsky Ore Mining and Processing Enterprise, or KGOK, a key holding for Evraz.

The operation, acquired by Evraz in 2004, processes iron ore from three open-pit mines in the Ural Mountains. It supplies raw material to the Nizhny Tagil Iron and Steel Plant, one of Evraz's three Russian mills, which is about 90 miles away.

Evraz's mines and their proximity to its steel mills allow the company to produce some of the world's lowest-priced steel products, some of which already are sent to Oregon Steel's Portland mill.

Marks, the attorney who filed the lawsuits, originally brought Khaidarov's claims six years ago in the U.S. District Court for the Southern District of New York. Brought on behalf of another lead plaintiff, Base Metal Trading, the case alleged the illegal theft not only of the Kachkanarsky mine but also of a large aluminum operation in Western Siberia.

The battle to control Russia's state-owned aluminum smelters was tainted by mob activity and violence that resulted in dozens of deaths and plundered assets, said David Satter, a research fellow at the Hoover Institution. A former journalist based in Russia, Satter devoted an entire chapter of his 2003 book, "Darkness at Dawn: The Rise of the Russian Criminal State" to the country's "aluminum wars."

"The amount of murder and criminality that was involved in the takeover of the Russian aluminum industry is just legendary," said Satter, noting that he was unfamiliar with Khaidarov's case. "Anyone who is involved in it or derived their fortune from it is very likely an undesirable character, to put it mildly."

But a federal judge eventually dismissed Base Metal's case, saying the United States was not the right place to try the claims. A federal appeals court later upheld the ruling.

Marks filed a new lawsuit in a Delaware court in 2003 and an identical complaint in U.S. District Court in Delaware. The lawsuits made similar racketeering claims but focused only on the theft of Kachkanarsky GOK and no longer included Base Metal as a plaintiff.

Both suits were filed on behalf of plaintiffs Davis International LLC, Holdex LLC, Foston Management Ltd. and Omni Trusthouse Ltd.

The lawsuits name three prominent Russian businessmen as defendants -- Oleg Deripaska, who now controls Russia's largest aluminum manufacturer; Iskander Makhmudov, a Russian copper magnate; and Mikhail Chernoi, a former Russian aluminum operative long suspected of ties to the Izmailovo mafia, a Russian organized crime group.

All three men, the lawsuits claim, operated as an organized crime group.

The lawsuits say the three men also controlled EvrazHolding.

Evraz's spokeswoman specifically denied that claim. "Evraz was never controlled neither by Mr. Deripaska, nor by Mr. Makhmudov, nor by Mr. Chernoi," Kibina wrote.

The suits allege that beginning in the early 1990s, the three "conspirators" set up false companies in Delaware where they wired money, bought and sold millions in U.S. real estate and used the proceeds to reinvest in Russian business ventures.

In April 1999, Khaidarov, who had worked for the three men as a financial adviser, left their group to serve as general director of the KGOK iron ore plant, according to the lawsuits. Around the same time, Khaidarov said in an interview last week, he signed an agreement with Abramov, co-founder of Evraz, to supply material to its steel mill and distribute products.

That same month Khaidarov left Chernoi's group, the lawsuits allege, Chernoi met with Khaidarov and threatened his life unless he sold his interest in the mine. According to the lawsuits, Chernoi listed other notable Russians who had been killed.

"There were a lot of clever people . . . but sometimes they die," Chernoi allegedly told Khaidarov. As a result of the alleged extortion, the plant's controlling shareholders agreed to sell a 20 percent stake to the conspirators as a result, the lawsuits say.

Later that year, according to the lawsuits, Makhmudov met Khaidarov at the Luxor Restaurant in Moscow's Metropole Hotel and summoned Anton Malevsky, a well-known Russian mafia leader, along with Deripaska and "five armed thugs." The men demanded that Khaidarov transfer 51 percent of the mill's shares to Chernoi without payment. Khaidarov told Malevsky he was crazy, according to the lawsuits.

"This is the last time that you will leave here alive," Malevsky allegedly told Khaidarov. Malevsky died two years later during a parachute jump in South Africa.

In January 2000, the lawsuits allege, the conspirators sent armed men to seize control of the plant, physically threatening and bribing board members to remove Khaidarov as manager.

Khaidarov fled Russia later that year, the lawsuits allege, after police planted drugs on him while at the Starlight Diner in Moscow.

U.S. District Judge Gregory Sleet in March dismissed the federal case, though Marks has appealed. The lawsuit filed in Delaware Court of Chancery, a special court that handles mostly business cases, has been stayed pending the federal appeals court decision.

Deripaska later joined forces with Roman Abramovich, now the controlling shareholder in Evraz, to create Russian Aluminum, or Rusal, the nation's largest aluminum producer.

Khaidarov, meanwhile, lives in Israel, afraid to return to Russia. In a declaration filed last year in Delaware, Khaidarov said he believes his mother was murdered in an automobile accident in retaliation for his filing the lawsuit.

He now is writing a book, he said in an interview last week, "to share his experience with Americans."

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