by Bill Browder
When I told Vadim about the meeting, he wasn’t as disappointed as I was. “If Putin really is behind this he must have been fed false information about you. We’ll find someone close to Putin so he can hear the truth.”
It was nice of Vadim to find such a positive way to spin this bad situation, but I didn’t buy it. “Who could possibly do that for us?” I asked skeptically.
“How about Dvorkovich?” Vadim suggested. Arkady Dvorkovich was Putin’s chief economic adviser, and Vadim had met him during our campaign to stop asset stripping at the national electricity company. Dvorkovich had been friendly to us, and most importantly, he had the president’s ear.
“It’s worth a shot,” I said.
Vadim contacted Dvorkovich, and surprisingly, he said he would try to help.
In spite of Vadim’s deliberate hopefulness, we were clearly running out of options.
Several days after I shared the bad news from the securities commissioner, Vadim got a call in our Moscow office from a man who refused to identify himself and who claimed to have important information regarding my visa refusal. He would share the information only in person and wanted to know when they could meet.
Vadim asked what he should do. Normally, we would have steered a million miles away from a Russian cold-caller seeking a meeting, but with all the obstacles we were hitting, I felt like we needed some kind of break. “Can you meet him somewhere public?” I asked.
“I don’t see why not,” Vadim said.
“Then maybe it’s worthwhile,” I said tentatively.
A day later, the stranger called again and agreed to meet Vadim at the Vogue Café on Kuznetsky Most, a trendy spot frequented by Russian oligarchs and their twenty-year-old model girlfriends. Standing around them were countless armed bodyguards, making it an ideal location.
As they had their meeting, I paced my apartment in London waiting for news. It lasted more than two hours, and Vadim called shortly after 11:00 a.m. London time. His voice was low and grave. “Bill, it was very disturbing. This guy, he had a lot of things to say.”
“Okay—but first of all, who was he?”
“I don’t know. He wouldn’t give me his real name, but told me to call him Aslan. He was someone in the government for sure. Probably FSB.”
“Why should we believe someone who refuses to identify himself?” I asked.
“Because he knew everything. I mean everything, Bill. He knew about our attempts with Gref, Vyugin, Shuvalov, Prikhodko. He had a paper in front of him with all the details of your detention at the airport, a copy of the letter from Brenton, everything. It was scary.”
A chill ran up my spine. “What exactly did he say?”
“He said this whole thing is under FSB control, and your visa cancellation is just the beginning.”
“Just the beginning?”
“That’s what he said. He said that the FSB is interested in, quote, depriving Hermitage of its assets, unquote.”
“Fuck.”
“Yeah. And it gets worse. It’s not just the company. It’s us. It’s me. Apparently the FSB is tracking everything I do, and he claimed that I’m going to be arrested imminently.” Vadim said this calmly—he said everything calmly—as if he were describing events that were happening to someone else.
I stood quickly, knocking over my chair. “Do you believe him?”
“I’m not sure, but he sounds very credible.”
“Why would this Aslan be sharing their intentions with us?”
“He claims there’s a war going on inside the government, and his group is in conflict with the people doing this to us.”
I had no idea if this was real or if we were being played, but I was sure of one thing: Vadim had to leave Russia. “Listen, I think it would be best if you came here as soon as possible. If there’s even a small chance that this guy’s telling the truth, we can’t have you getting arrested.”
“Wait, wait, Bill. Let’s not overreact.”
“Are you kidding, Vadim? Get out. You’re in Russia. Russia! There’s no such thing as overreacting in Russia.”
We hung up, but Vadim refused to leave. He knew that if he left Russia at that moment, he might never go back. In his mind, he couldn’t just go into exile because of what this anonymous stranger told him that afternoon. He wanted more information.
I saw things differently, and I implored Vadim to talk to Vladimir Pastukhov, a Moscow lawyer Hermitage had used as outside counsel over the years. Vladimir was the wisest man I knew and like no one else I’d ever met. He was nearly blind, and the Coke-bottle glasses he wore made him look like a scribe from a Dickens novel. Because of his disability, however, Vladimir’s mind was sharper, bigger, and more well rounded than that of anyone else I’ve ever known. He had a rare gift: the ability to read any complex situation to the deepest level and the smallest detail. He was like a great chess player, able to anticipate an opponent’s every move not merely before it was made but also before his opponent even realized it was available.
Even though Vadim wouldn’t leave, he did agree to see Vladimir. When Vladimir opened the door to his apartment just before midnight, Vadim put a finger to his lips, indicating that they shouldn’t talk—just in case Vladimir’s apartment was bugged. He stepped aside and Vadim entered. They made their way in silence to Vladimir’s computer. Vadim sat and started to type.
I’ve been warned by somebody in the government that I’m going to be arrested. Can they do that?
Vladimir took a turn at the keyboard. Are you asking me as a lawyer, or as a friend?
Both.
As a lawyer, no. There are no grounds to arrest you. As a friend, yes. Absolutely. They can do anything.
Should I leave?
How credible is your source?
Very. I think.
Then you should leave.
When?
Right away.
Vadim went home, hastily packed a suitcase, and made his way to the airport for the 5:40 a.m. British Airways flight to London. I couldn’t sleep at all that night until I got a text at 2:30 a.m. London time that Vadim was on the plane and about to take off.
He arrived in London that morning and came directly to my apartment. We were both in shock. We couldn’t believe how quickly things had gone from bad to worse.
As we sat in my study discussing the previous day’s drama, Vadim got a message that Arkady Dvorkovich, Putin’s economic adviser, had taken our request for help seriously. Dvorkovich said he’d convinced several people in the presidential administration that it would be damaging for the Russian investment climate if my visa wasn’t reinstated. Most significantly, the message stated that my visa issue would be put on the agenda at the National Security Council meeting with President Putin the following Saturday.
After this call Vadim and I tried to make sense of the conflicting news coming out of Russia. How could it be that people like the minister of economics or the head of the Russian securities commission were relaying messages that my situation was hopeless, while the president’s economic adviser seemed to think that he could help me get my visa fixed at the National Security Council?
It occurred to me that perhaps everyone was telling us what they thought to be true, but the Russian government was full of different factions expressing their own opinions.
Whatever was really happening, all I could do was hope that Dvorkovich’s faction was going to win and the National Security Council meeting would bear fruit for me.
But then, just four days before the big meeting, a new factor entered the equation when I received an email from the Washington Post’s Moscow bureau chief, Peter Finn. It read:
Hi Bill,
Hope all is well. Sorry to bother you with a rumor, but there’s one floating around that you’re having some visa difficulties. Anything to this? And if so, are you willing to talk about it? For an investor of your stature it would be significant.
Cheers,
Peter
Shit! How had this guy heard about
my visa? This wasn’t good. All I could think of was Simon Smith’s warning about how the Russians would dig in their heels if my story got out. I didn’t respond to Finn, and thankfully he didn’t follow up.
Unfortunately, another reporter, Arkady Ostrovsky from the Financial Times, called me on Thursday. He’d heard the rumors too. “Is it true you’ve been denied entry to Russia, Bill?”
I tensed my stomach. “Arkady, I’m sorry, but I can’t comment on that.”
“C’mon, Bill. This is big news. I need to know what’s going on.”
Arkady and I were on a first-name basis because he was one of the journalists who’d been instrumental in the Gazprom exposé. While I couldn’t deny to Arkady what was happening, I had to delay him. “If it were true,” I said, “and I gave you an exclusive on this, can you give me four more days?”
He didn’t like that, but it was better than no story at all, and we agreed that I’d call him on Monday.
I was completely on edge after talking with Arkady. Reporters were catching wind of what was going on, and all I had to do was get through the next thirty-six hours without any more of them calling. But then, at 10:30 a.m. on Friday, a Reuters reporter named Elif Kaban left me a message on my voice mail. She didn’t say what she was calling about, but she called again at 11:45 a.m.
I had a lunch scheduled with an old friend from Washington that afternoon and left the office without returning either of her calls. I met my friend at a dim sum restaurant in Chinatown and turned off my phone, but I put my BlackBerry on the table to monitor the Reuters issue just in case. After my friend and I collected a few dishes off the cart, my BlackBerry started to blink with a message from my secretary:
Bill, Elif Kaban is still trying to get through to you. She says Reuters has received solid information about you not being allowed into Russia and they’d like to give you an opportunity to make the first statement. Please get back to them as soon as possible. This is their fourth call today. Elif Kaban is being VERY persistent!!
I stared blankly at the email for several seconds, stuffed my BlackBerry in my pocket, and tried to enjoy the rest of my lunch. I knew that the shit was about to hit the fan, but I wanted a few last minutes of peace.
After leaving the restaurant I took a detour through Green Park. It was a bright, crisp spring day, one of those days when it felt good to be a Londoner. I breathed the fresh air and looked around at all the carefree people walking in the park, people who weren’t about to have their worlds turned upside down.
I finished my walk and got to my desk. A few minutes later Reuters published a red headline: “Hermitage CEO Browder Barred From Russia.”
The secret was out. My phone immediately lit up like a Christmas tree. Calls came from the Wall Street Journal, the Financial Times, Forbes, the Daily Telegraph, the Independent, Kommersant, Vedomosti, Dow Jones, AP, the New York Times, and about twenty other news organizations. This was exactly what Simon Smith had warned me about, and now it was happening. There would be no way for the Russians to save face, no way to back down. Nothing would come of Russia’s National Security Council meeting anymore. My fate had been decided, and from that moment I knew that it was official: I was done with Russia.
Except Russia was not done with me.
21
The G8
When the Russian government turns on you, it doesn’t do so mildly—it does so with extreme prejudice. Mikhail Khodorkovsky and Yukos were prime examples. The punishment for presenting a challenge to Vladimir Putin went beyond Khodorkovsky to anybody who had had anything to do with him: his senior managers, lawyers, accountants, suppliers, and even his charities. By early 2006, ten people connected to Yukos were in jail in Russia, dozens more had fled the country, and tens of billions of dollars of assets had been seized by the Russian authorities. I took this as an object lesson, and I was not going to allow the Russians to do similar things to me. I needed to move my people, and my clients’ money, out of Russia as quickly as possible.
I brought Hermitage’s chief operating officer, Ivan Cherkasov, to London to help do these things. Ivan had joined Hermitage five years earlier from JP Morgan, and he was the one who hounded brokers, chased banks, and organized the payroll. He was thirty-nine, tall and telegenic, spoke flawless American English, and did his job perfectly.
Ivan set up a war room in our serviced offices on Tavistock Street in Covent Garden and got to work. Getting our people out was relatively easy. Within a month everyone at Hermitage whom I thought was at risk, as well as their families, was safely outside of Russia.
The harder part was selling billions of dollars’ worth of Russian securities without anyone knowing. If the market caught wind of what we were doing, brokers and speculators would engage in a practice called “front-running.” In our case, if brokers learned that Hermitage was going to sell all of its Gazprom holdings, those brokers would try to sell their shares first, driving down the price and potentially costing Hermitage clients hundreds of millions of dollars in that one stock alone.
To avoid this, we needed to find a broker who could execute the fund’s sell orders with complete confidentiality and discretion. However, brokerage firms are generally not a trustworthy bunch, and local Russian brokerage firms are particularly untrustworthy. We also couldn’t choose a major Western brokerage house that we had previously done business with because, as soon as it started executing our orders, the other brokers would put two and two together and conclude that Hermitage was selling, causing them to start dumping their shares.
This didn’t leave us with many options. We looked at who was left and zeroed in on an affable thirty-two-year-old broker who headed a two-person trading desk at one of the big European banks in Moscow. He’d tenaciously been trying to get some business from us for years, and now we were going to give him his shot.
Ivan called him up and told him that his persistence was about to pay off. “There’s one thing, though. We can only do this if you can swear to complete secrecy.”
“Of course,” he said. “I won’t let you down.”
The next day the broker received a sell order for $100 million. He was probably expecting $1 million—$5 million max—but never in his wildest dreams $100 million. It was likely the biggest order anyone had given him in his career.
Over the next week, he sold $100 million of our shares without any market impact or any information leak. He reported his results proudly, thinking he had completed the job, but was completely surprised when he got another $100 million sell order. Again, he executed this flawlessly. He continued to receive large orders from the fund over the next two months, and in the end he sold billions of dollars’ worth of Russian stocks for us without any leaks. This virtuoso performance transformed his little operation from total obscurity into his bank’s most successful European trading desk. Most importantly, Hermitage had successfully removed its money from Russia without our enemies ever knowing.
With our people and money safe, we had eliminated the main levers that the Russian government could use to harm us. Whatever their next move might be, it couldn’t be that daunting.
I felt better after achieving this, but dealing with the loss of confidence from my clients was a different matter. Most had invested in Hermitage because I was on the ground in Moscow. When I was there, I could identify profitable investments and protect their capital if something went wrong. Now, all of a sudden, I could do neither.
The first person to point this out was Jean Karoubi, the man I’d first approached as an investor back in 1996. Jean had become one of my closest confidants over the years and always had his finger on the pulse of the markets. When Reuters broke my visa story on March 17, Jean called me almost immediately and said in an uncharacteristically serious tone, “Bill, we’ve done great together. But I’m having a hard time coming up with a reason why I should keep my money in the fund when you’ve fallen out with the Russian government.”
Hearing this from one of my earliest and most enthusiastic supp
orters was a bit of a shock, but he was right. The last thing I wanted to do was try to convince him to keep his money in the fund only to have things go further off the rails with the Russians. The only logical thing for him to do was take his winnings off the table.
In the following days I had similar conversations with many other clients who’d come to the same conclusion.
I knew what was coming: redemption orders, and lots of them.
The next available date that investors could withdraw money from the fund was May 26, and they had to submit their redemption requests eight weeks before that. So on March 31 I would get my first look at how bad the situation was.
At 5:20 p.m. that day, I received the redemption spreadsheet from HSBC, the fund’s administrator. Normally, the subscriptions and redemptions were listed on a single page. In a busy quarter it might be two or three pages. But this spreadsheet was ten pages long with 240 line items of people requesting their money back. I quickly flipped to the end and added it all up. More than 20 percent of the fund was redeeming!
That was a huge number by any measure, and I knew it was just the beginning. I was standing on the precipice. Everything I’d worked for was starting to fall apart. The only thing that might possibly change the situation was getting my Russian visa reinstated. But I had given up on that.
Surprisingly, the British government hadn’t. In mid-June 2006, I got a call from Simon Smith, head of the Russia desk at the Foreign Office: “We’re working an interesting angle for sorting out your visa problem, Bill. But we wanted to make sure you’re still interested in returning to Russia before we move forward.”
“Of course I’m interested, Simon!” I said enthusiastically. “But I thought you wouldn’t do anything more after the media circus.”
“The press didn’t help, that’s for sure. But we haven’t given up,” Smith said reassuringly.