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Kozeny: “The whole can of worms is going to explode” |
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A fierce storm is blowing outside as I dine with Viktor Kozeny at the most exclusive club in the Bahamas. Like the thunder and lightning that foretell doom in a Shakespearean tragedy, it may portend the final downfall of the Czech financier. Kozeny is facing suits for over $140 million, and both his credibility and fortune look to be enormously precarious. But as oblivious to the deafening gale as he seems to be to the court proceedings that have piled up against him, Kozeny launches into one of his trademark stories. “Do you know what money actually smells like?” he asks, digging into his pineapple and seafood salad. “Fund managers love to talk about the smell of money, but few of them really know what it’s like.”
The smell of money
In March 1998, Kozeny flew in a private jet from Zurich to Baku, the capital of the oil-rich Caspian state Azerbaijan, accompanied by an American fund manager and $30 million in cash. The money had been flown first from the Federal Reserve Bank of San Francisco and was made up of bricks of $100 bills divided between six suitcases. When the jet got up to around 15,000 feet, Kozeny’s travelling partner asked what the strange smell was. “That,” said Kozeny “is the smell of money.” The change in pressure had forced air out of the suitcases, each one holding 50,000 new notes. Kozeny’s co-traveller asked for a case to be brought from the back of the plane and opened. He spent much of the rest of the flight with his head buried in the case murmuring excitedly like a small schoolboy.
This anecdote captures a little of the peculiarity of Kozeny’s dealings in the former Soviet republic of Azerbaijan. With hundreds of millions of dollars of cash pumped into a speculative privatization programme, this was no ordinary investment. “This was not a case to study at Harvard Business School,” says Kozeny, “unless you want to study how business should never be done. And it’s not an easy case to go public on either.” It is a story that encapsulates greed, self-delusion and possibly deceit on the grandest scale. It has led to court proceedings against Kozeny in the Bahamas, the British Virgin Islands, London and the US. And this wave of litigation looks set to continue, with promises from Kozeny that he will turn the tables on US plaintiffs by taking both them and the Azeri government to court.
For a man who is being hounded for dozens of millions of dollars in courtrooms worldwide, Kozeny is remarkably cheerful. “Really, I’m only worth $30 million,” he repeats with a laugh, tirelessly insisting that the stories of hundreds of millions tucked away in offshore accounts and Russian oil are mere folk tales from an often hostile press. His $25 million house in London and the Aspen Colorado holiday home for which $19 million was paid in cash, and on which a further $10 million was spent on improvements? “I don’t own the Aspen house; whoever does could simply lock the door on me whenever they chose,” he grins. The London house on Eaton Square, which had formerly belonged to composer Andrew Lloyd Webber, was at the time the most expensive terraced house in Britain. Kozeny is renovating the property at the moment, one of the upgrades being bullet-proof windows.
Kozeny may not be in danger (although he is also said to have built hide-away cubbyholes in two of his residences) but he is certainly in trouble. “Ah, is it Viktor the Czech that you’re seeing?” asks the taxi-driver after we have been quizzed by security guards as we enter the luxury compound where Kozeny lives. “That’s a man who sure has big problems.”
A Colorado District Court judge has reached much the same conclusion, extending a temporary restraining order and preliminary injunction on the Aspen residence and its contents. In June this year, judge Lewis Babcock stated in his rulings of law and findings of fact that “there has been a strong showing of reasonable likelihood that Mr Kozeny engaged in a fraudulent scheme, as alleged by the plaintiffs… with an intent to profit secretly by the options dumped by Mr Kozeny from his personal inventory after he made representations that was not going to occur”.
On the basis of affidavits provided by building and renovation contractors, Babcock found that Kozeny had diverted $9.7 million from Swiss bank accounts to pay for work on Peak House, his three-acre Aspen estate. Among the improvements made, which Babcock rules to have come from money paid by the plaintiffs for the purchase of Azerbaijani instruments, were the construction of a workout room for Kozeny’s wife, a playroom for his children, an extra suite, and a cigar room that juts underground into a mountainside.
“It’s basically just a cupboard,” Kozeny says of the cigar room, still contending that Peak House is not his property but that of Landlocked Shipping Co, a corporation organized under the laws of the Turks&Caicos Islands. Judge Babcock has ordered nonetheless that the Aspen home and its contents be frozen on the basis of “undisputed evidence” that Kozeny has beneficial ownership of it. The freeze came as part of Babcock’s determination that Kozeny has violated the Colorado Organized Crime Control Act by using Landlocked, along with two other companies, to launder funds gained through racketeering.
Furthermore, Babcock notes that the home was an “essential and integral part of Kozeny’s method to recruit investors in the Azeri fraud by impressing them with his material wealth.”
The furnishings in the Aspen home, owned on paper by another offshore company, Turnstar Corp, were also frozen. These included a Tiffany grandfather clock, French furniture from the 17th to 18th centuries and a couch covered in 33 alligator skins. A freeze has also been placed on Kozeny’s collection of 500 bottles of Merlot and 23 cases of port.
Kozeny is determined that, no matter how things ultimately pan out in the courts, nobody is likely to look good. “The whole can of worms is going to explode,” says Kozeny “and the worms are going to bite these guys on the butt. This is not a case of widows and orphans being skinned by a ruthless investor. This is a case of tough Wall Street people getting involved in something they should never have.”
Caveat investor
They should have been on their guard. Kozeny is largely remembered as the individual who robbed credibility and perhaps more from the Czech privatization process. In 1991, Kozeny’s Harvard Capital and Consulting promised a tenfold return on anybody’s Kr1,035 initial investment in Czech privatization vouchers, realizable within a year and a day. Those who sold their vouchers to Kozeny did see the share price in their funds rise tenfold – as such, Harvard’s pledge was met. But the stakeholders in the Harvard funds derived far less upside from their investments than they could have. The net value of Harvard stakes was to be diminished by a combination of generous management fees payable to Kozeny and by the inability of investors in the closed-end funds to cash out at the shares’ nominal value. In the First year of stock market trading alone, he accumulated at least $40 million in fees.
In 1993, with investigators closing in, Kozeny shed his Czech citizenship in return for Irish nationality, picking up a Grenadian passport along the way. Kozeny next appeared in the Bahamas, traditional home to controversial financiers and taxpatriates. From his new home in the exclusive gated community of Lyford Cay, Kozeny sought to establish links with moneyed people and to search for new money-making schemes.
Déja-vu In the spring of 1997, Kozeny had decided on a trip around the world to look for fresh investment opportunities. The key moment in this globe-trotting reccie was to occur in a taxi in Azerbaijan. As Kozeny tells the story, the car became caught up in a jam caused by a flock of sheep. The taxi stationary in the melêe, its driver dipped a hand into his pocket and pulled out a booklet of crisp privatization vouchers. “There was a picture of a huge oil tower on the cover of the booklet,” says Kozeny, who eagerly asked to examine it. The text on each of the four vouchers said they entitled the bearer to 1/32,000,000 of Azerbaijan’s assets. “The driver told me that the books were transferable, and then trading at just $10,” says Kozeny. “And I thought ‘Wow, for just $80 million, I can buy a country.'”
Kozeny immediately set about buying up vouchers. He set up a company, Arsenal-5, that would be responsible for the physical task of buying vouchers in the nascent grey market that had sprung up near the 28 May underground station in Baku. In keeping with its name, Arsenal-5 hired and armed former agents of Russian special forces to ensure the operation’s security, and off went the First outlay of $500,000 cash, via Switzerland, to Azerbaijan. Over the next few months, Viktor was to pump a further $14.5 million in to buy Azeri privatization vouchers. “There wasn’t a long-term plan,” says Kozeny. “The idea was to go in, buy into the country, and then sell.
We’d sell directly, and also float enterprises we’d bought.”
While Arsenal-5 got on with acquiring vouchers, Kozeny set up Oily Rock and Minaret Group. Oily Rock, a British Virgin Islands registered company, would hold Kozeny’s interests in Azerbaijan and Minaret’s role was to provide the infrastructure necessary for the Azeri investments. The name Oily Rock indicated Kozeny’s fantastic ambition to gain control of Azerbaijan’s oil industry. The idea was to get sufficient vouchers to buy state oil company Socar at an auction, then sell at a multiple of the price paid.
To achieve this aim would require establishing a close relationship with the formidable Heidar Aliyev, the octogenarian president who on and off has run the country for the past 30 years, First gaining power as communist boss and then, in 1994, as part of a military coup.
There is little in Azerbaijan, even the outcome of purportedly democratic elections, that is not subject to presidential dictat.
Regardless of how Minaret ensured that domestic sentiment was favourable to its operations in Baku, investors in the US and elsewhere were being led to believe Kozeny was on to something unique. Visitors to his Aspen chalet were treated to informal lectures on Azerbaijan and the attractiveness of its investment opportunities. Without soliciting them to co-invest, Kozeny was telling all and sundry of his Azeri plans at lavish parties he hosted.
Nearly three years later, a consortium of US investors would claim to a Colorado court that Kozeny played the host “in furtherance of his scheme to solicit investors to buy vouchers and options”. This inducement was in turn part of “an intricate fraud scheme” perpetrated on a multitude of investors. They state that Kozeny, contrary to an agreement not to do so, sold Azeri securities to them at a mark-up, thereby amassing enormous secret profits.
| Lyford Cay club: one of the places where Kozeny made friends and influenced people | ||||||
The securities in question are not the Azeri privatization vouchers themselves, but so-called “options” to use the vouchers, which foreign investors were required to possess if they wished to take part in the state auctions. These options – as distinct from conventional financial usage of the term – were instruments designed effectively to impose a tax on foreign participation in the subsequent auctions. For each voucher booklet that was to be used in an auction, foreign holders would be required to cover it with the purchase of four options – ie, one option per voucher, although commonly the book of four vouchers itself was referred to as “a voucher”. The options were purchasable through the State Property Commission (SPC), which fixed their price on the First day of each month.
When the SPC First began issuing options they were sold for Am2,000 each, a little over 50 US cents. Thus it cost just over $2 to cover a booklet of four vouchers. The price of vouchers on the secondary market fluctuated, but most of those that Oily Rock purchased were trading at between $70 and $100. According to Minaret research, however, SPC estimates of $6.5 billion assets being privatized at voucher auctions put the real value of each voucher at over $800. A $2 surcharge to buy the options that were needed for the vouchers’ use was not terribly significant.
Around August, the SPC doubled the price of each option to Am4,000 – still a bargain. But at the end of October, by decree of the SPC chairman, the price was hiked dramatically to Am100,000, just over $25: an increase of 25 times the previous price and 50 times the initial price. Anybody with sufficient foresight stood to make a killing by buying early and then selling at a 5,000% mark-up.
This is precisely what some of Kozeny’s co-investors say he did to them – contrary to the explicit terms of his contract with them.
If what his accusers say is true, by the time he invited them to a sumptuous party in December 1997, Kozeny was sitting on millions more options than his vouchers required, simply waiting for the opportunity to sell them on to somebody. It was not long before a line of would-be investors formed. These included Aaron Fleck, an Aspen vacationer in his late seventies, who put in $4 million, senator George Mitchell, who put in $200,000 and Shafiq Gabr, the president of Egypt-based conglomerate Artoc, who parted with several million.
Kozeny now claims that he didn’t need people to invest with him, and that he was pressured to allow others to join the scheme. Maybe. But if he was to get a sufficient handle on the country to gain control of Socar, he needed substantial funds. Some of the First wave of investors claim he was looking to find institutional investors to put up a further $100 million or so. Through Aaron Fleck, the founder of Aaron Fleck and Associates, a money manager in Greenwich, Connecticut, the scheme was put beneath the nose of Leon Cooperman, the chairman and founder of Omega Advisors, a hedge fund holding $4.5 billion of assets.
Before starting Omega, Cooperman spent 25 years with Goldman Sachs, where he became chairman and CEO of Goldman’s asset management department. As an analyst in the research department at Goldman, Cooperman was voted the number one portfolio strategist for nine consecutive years in Institutional Investor magazine’s All-America Research Team survey.
Cooperman says he had virtually nothing to do with the investment and passed over dealings with Kozeny to Clayton Lewis, who was responsible for Omega’s emerging markets investments. Cooperman did, however, add $10 million of his own money to the kitty. Lewis was, at the same time, the managing principal of Pharos Capital Management, a money-managing firm he himself founded that, separate from Omega, oversaw $170 million through two investment funds. (He was to leave Omega in September 1998, ostensibly for a costly overplay of his hand in Russia.) In March, however, there was no alarm when Lewis announced that Omega wanted to commit $110 million, more than quadruple its initially mooted figure of $25 million. Star of the moment, Lewis gathered in a further $15 million from insurance and financial services group AIG, $15 million from New York’s Columbia University, and some $30 million more from other investors, including Goldman Sachs.
Did they push or were they invited?
It seems extraordinary that such respectable investors should be placing money with Viktor Kozeny. Clearly they were hoping to put their money in the hands of someone who indeed possessed the canniness and ruthlessness to ensure the fairytale returns he promised in frontier emerging markets.
Kozeny says, rather implausibly, that the only reason he was eventually to allow Omega in as a co-investor was that he was told that to fail to do so would cause unfavourable ripples on Wall Street, causing difficulties for the subsequent flotation of acquired enterprises: “Aaron really pushed Omega. He said that Omega already knew about the deal and would blackball us afterwards when it came to our IPO. I don’t want ill will on Wall Street They can either hype you up or badmouth you. I turned Omega down three times.”
Cooperman repudiates this claim in a letter to Euromoney, in which he writes that the investment was made “at Mr. Kozeny’s invitation”.
“Aaron Fleck, who knew me on and off for 25 years, called me one day and caught up with 20 years of our not having spoken with each other,” says Cooperman. “And basically he got to the point,” which was that he had come across a great investment with Kozeny, who was hoping to Find large institutional investors.
Cooperman says that a date was suggested when Kozeny could come in to make a presentation, but that he was to be away on that day. Thus when Kozeny went to Omega to outline the scheme, he did not meet Cooperman. Kozeny claims that this is not true, that he met Cooperman and that in the course of their meeting Cooperman sought reassurances that “the big man”, meaning Aliyev, was “in on the deal”. Cooperman says that no such meeting took place.
This is a significant disagreement. If Kozeny’s account is correct, aggressive and sophisticated US investors forced their way into a private deal the risks of which they were ill-qualified to evaluate but that should have been at least partly obvious from Kozeny’s own involvement and the fact that the setting for the transaction was Baku. Kozeny says that the head of a high-profile US investment bank also approached him with a view to putting money in, as did the one-time owner of an airline company. “I said, as I did to Omega, that I didn’t think this was the right investment for them,” says Kozeny. “These are not typical Wall Street deals. You’re inducing social change, and are forced to make accommodations you wouldn’t do otherwise.” High motives indeed from a man who admits unabashedly that he hoped to acquire, and flip, a national oil monopoly for quick spoils.
If Cooperman’s story is true, Kozeny is lying – and the implication follows that he may well have misled investors either as to the risks in the transaction or the technical details of it. This would make it more likely that from the start Kozeny’s plan was simply to amass cheap options, wow investors with the prospects of buying Azerbaijan’s oil monopoly on the cheap, and offload his options. It would be irrelevant to Kozeny whether Socar was privatized or not – a possibility most in Baku at the time found unthinkable.
Kozeny, under pressure, is hitting out not just at his American co-investors but also at the president of Azerbaijan and his family. “It can be guaranteed that I’ll take the Azeri government to court,” he says, claiming that he can sue the state for having promised a thorough privatization. “Even in communism there was some kind of accountability,” Kozeny continues. “I’ve been nice to Aliyev for four years, and have given him so many chances. It’s difficult for me to be kind to Aliyev after being repeatedly betrayed.”
By October 1998, the co-investors were beginning to worry. Maybe privatization wasn’t going through after all. Eric Vincent, a lawyer who at the time worked for Omega, jetted over to Baku to see what was happening.
While there, he acquired a copy of a recently completed report by the SPC, sponsored by the EU, on the result of Azeri privatization thus far. According to the report, as of August 1998, over 18 million options had been sold.
Of these, only 45,474 had been sold at $25; the rest had sold for between 50 cents and a dollar. The Omega investors had however paid $25 per option for all of their 2,676,557 options. Something was wrong.
Cooperman says: “I called Viktor and said ‘Look Viktor, we have some information which raises questions and I’d like to talk about it.” Cooperman says that for the next nine months Kozeny claimed he couldn’t fit a visit to Omega in with his schedule. “I gave him every opportunity to come in and say ‘this is what you’re missing; this is what you don’t understand … I called that son of a bitch personally four or five times in the Bahamas, and he thumbed me.”
Cue the lawyers. In December 1999 and February 2000 respectively, AIG and Omega initiated parallel actions against Kozeny at the Supreme Court in the Bahamas. At the same time they filed actions in the High Court in London, where the judge received an “obviously strong” prima facie case of fraud, and issued freezing orders that prohibit Kozeny from dealing in or dissipating his assets, wherever they may be worldwide, up to $160 million. In December 1999 the High Court of Justice for the British Virgin Islands issued an order placing Oily Rock and Minaret’s assets into receivership. “If someone overcharges you by $100 million, I don’t care what you’re worth, you want to be treated properly,” says Cooperman. “I don’t want to sound like I’m sanctimonious, highly principled or whatever – but I am.”
Accounting anomalies
Central to proceedings are two letters from accounting Firm Grant Thornton. In March 1998, an audit consultant at Grant Thornton visited Minaret from Zurich to assess the net assets of Minaret and Oily Rock. A chart dated March 13 1998 and later cited in the findings of a Colorado court shows that by this time Oily Rock, via 45 offshore shell companies, had purchased over 15.5 million options from the SPC. These had been bought for an average price of under 40 cents each, and more than 10 million of the options were not covering corresponding voucher booklets. And yet this notwithstanding, a letter from Grant Thornton dated March 24 and addressed to Harvard Capital suggests that Oily Rock held only 300,000 options over and above the number needed for each voucher held.
The Grant Thornton letter is significant since Omega was led to believe that it formed a baseline for its co-investment with Oily Rock.
This was an investment predicated on an understanding that Kozeny would not charge Omega Baku any mark-up on the prices that he had paid for either vouchers or options. Part of a co-investment agreement signed between Oily Rock and Omega, an agreement the terms of which Pharos and AIG were also to demand, reads: “All purchases of Vouchers (and options) on behalf of the Voucher Holding Companies shall be made at the best prices available to Oily Rock Group … and such prices shall not exceed the prices paid by Oily Rock Group for such Vouchers (and options) purchased for its own account or the accounts of its Affiliates or Clients in similar transactions and at similar times.
Oily Rock Group shall ensure that none of the Vouchers (and options) purchased on behalf of the Voucher Holding Companies shall be purchased from Oily Rock or its Affiliates, or from any of its Clients over which Oily Rock Group exercises investment discretion, unless consented to in writing in advance by Omega Baku Group.”
The case against Kozeny is that he was selling options to his US co-investors from stockpiles he had acquired very early on in the privatization process. The nub of the investors’ complaint is that Kozeny was charging a mark-up on the options in blatant breach of an agreement not to do so. “What [Kozeny] wants to make it sound like is that basically we’re babies,” says Cooperman. “That we made an investment that turned out bad and we’re blaming him. That’s not what we’re blaming him for. We’re saying we had an iron-clad arrangement to do business in a certain way. He basically violated that agreement. The fact that he says we’re cry babies and that we lost money is completely bogus. It’s bullshit.
We understood that there was risk associated with the transaction.”
The understanding between Kozeny and his investors, laid out in both a preliminary letter of intent and a co-investment agreement, was that Kozeny was not entitled to compensation for acquiring vouchers for his co-investors – instead he would take a percentage of subsequent profits once the vouchers were used. “He had to make more,” however, according to Cooperman. “He thought he was going to make a zillion dollars in the investment, but that in itself wasn’t enough.
He had to basically steal from us. And it’s unequivocal that that’s what he did. That’s what we’re going to prove.”
Non-disclosure instructions
Clearly Oily Rock was making profits. The Colorado court’s findings refer to a June 29 memorandum and attachment, from Grant Thornton: the attached financial statements for Oily Rock reflect over $93 million in income from the sale of options. The memo itself records that although Kozeny himself “agrees with the calculations” he was instructing his auditors to “make sure that these figures are not being disclosed to anybody outside for the time being…”
The case may not be so clear, however. Kozeny hopes that it isn’t, and will assuredly do his best to show that it isn’t when it comes to the High Court in London next autumn. First off, Kozeny says that the whole thrust of the accusations is undermined by the fact that the American investors purchased all their options and vouchers before any co-investment agreement was signed. This is a curious thought, raising the question of why investors would insist on protective agreements that they fail to sign before investing. One answer might be that the investors sought to put in a safety net after the fact. This in turn raises the question why somebody in Kozeny’s position would have signed such an agreement.
Establishing the truth may be difficult since holdings of Azeri instruments were shuffled among the co-investors at various points. The sworn affidavit of a former Omega executive, put before a London court last year, says: “While the ownership of vouchers and options among the underlying Omega and Pharos Funds never changed, the apportionment of such vouchers and options among the parent companies did change with the restructuring of the parent companies in September 1998.”
In other words, different vehicles were used to purchase options on behalf of the various investors. Ultimately all the options ended up being managed by a core group, but the allocation of specific options, bought at specific times and specific prices, to the paying investors was manipulated in various restructurings making it hard to work out which investors paid what for their options and at what times. This aspect of the court case will involve dense technical detail relating to trading records and the positioning of instruments. The courts may have to decide on claims that trade confirmations recording the sale and purchase of options and vouchers between Kozeny and the US investors were destroyed and replaced by fabricated receipts to Wt in with Kozeny’s claim that the option purchase agreement was only signed after options had been purchased.
The “Azeri interests” defence
Yet another, and perhaps central, element of Kozeny’s defence, though, will be that he did not take advantage of US investors… but that the Azerbaijani government did.
According to Kozeny his First run-in with the Azeri government came in summer 1997, when one of Arsenal-5’s henchmen was arrested by the Azeri secret police while effecting a transfer of cash for vouchers. The courier was detained without charge for a week and the cash and assets seized. Meanwhile it was suggested that whoever was behind an operation channelling millions of dollars through Baku’s streets might care to meet with the president. Kozeny did so.
“There’s no deal you can do in the country without the president knowing, and probably not without him participating,” Kozeny says. “They wanted their bite,” he continues, referring to a group comprising president Aliyev, his son Ilham and their “associates”.
This consortium Kozeny thereafter refers to as the “Azeri interests” and he is to claim that those interests played a significant and distorting role in all of his dealings in the country. This view is echoed by a businessman in Azerbaijan who notes that “you can’t open a hot-dog stall without the president’s involvement.”
Kozeny claims that the Azeri interests were not content with the money made from the arrangement by which Oily Rock bought through presidential connections. “When they started to muscle,” says Kozeny, “I said I’d do some things. But I said I wasn’t willing to pay bribes.” Instead, according to Kozeny, Oily Rock cut back its position and gave over to the president and others a substantial stake in their accumulated privatization instruments. “One may blush that we consented the Azeri interests to come in,” Kozeny says, although he claims the divestment was done on market terms and was not a bribe.
Kozeny claims that in October 1997 Aliyev made it clear to him that more would have to be done to ensure that presidential goodwill toward Kozeny’s operations was maintained.
Kozeny says that the president demanded that he and his associates take a two-thirds position in the investments being arranged by Oily Rock, notwithstanding the fact that the Azeri interests did not have sufficient personal finances to acquire that position. “Our position was way too big,” says Kozeny, “and we had to scale back. Not because of any law, but simply because if you get beyond a certain size then others want a cut as well.” As a result, Kozeny claims, the Swiss lawyers von Meiss Blum were instructed to form three holding companies that would house the Azeri interests’ stakes: Enkridge Holding Inc, Cudina Financial SA and Estoria Portfolio. Three credit facilities were extended to these companies by Jemur Holdings, a vehicle of Oily Rock. Each facility, which was accompanied by a side agreement waiving interest, was for $100 million. According to Kozeny, the rationale was that the Azeris could buy into their own privatization. “You have to make sure that the domestic people are involved,” Kozeny explains “when one’s instigating this kind of social change.”
Thus Kozeny claims that he did not in fact own the extra options his US litigants claim he was to sell to them at a mark-up. The 10.5 million options that the plaintiffs say were in his inventory but not disclosed, Kozeny says, were only under Minaret’s custody and were not in the possession of either of Kozeny’s vehicles or of any group over which Oily Rock or Minaret exercised investment discretion.
Kozeny says that by December 1997 Oily Rock had 670,000 voucher booklets and 2.68 million corresponding options, along with 2.33 million excess options ready to cover the imminent acquisition of further vouchers. In all, Kozeny says, Oily Rock beneficially owned 5.01 million options, 3.01 million of which had been acquired through the Azeri interests. He says that between then and March 20 1998 a further 1,960,000 vouchers were bought by Oily Rock, with a further 3,130,000 options. Of the options, Kozeny claims that 232,334 were from the Azeri interests and the balance of 2,897,666 vouchers had also been acquired from the Azeri interests. Kozeny claims that as at March 20 1998, the balance of options, 7,587,000, were beneficially owned by the Azeri interests.
Kozeny claims that in early April 1998 he told Clayton Lewis during a meeting in Kozeny’s Aspen residence that “our friends” were willing to sell four million options at $25 per option. This was a slight discount on the official price being quoted by the SPC on the primary market. Kozeny says that Lewis was happy with the price, and on behalf of Omega and of subsequent parties agreed to the trades. Lewis authorized the secondary purchase of whatever options were needed to cover their present and future voucher position. Lewis was unable to discuss these claims with Euromoney, citing the fact Pharos is still considering its position vis-à-vis legal action against Kozeny.
Antos Glogowski, an ex-Daiwa Securities warrant expert who now heads AJG, a finance company that also set up operations in Azerbaijan, says he was offering options at prices undercutting Kozeny. Glogowski, who says it was apparent from the outset that options had been priced unrealistically low by the government, says he deliberately stockpiled extra options with a view to selling them on at a higher price. “[Kozeny] and I went in [to the SPC offices] and I remember Barat [Nuriyev, the deputy president] saying “Why do you want so many [options]?”
Glogowski says that after the government raised option prices to $25, he was selling his stockpiled position for between $8 and $12 per option. “As a competing broker [to Kozeny] I can say that I was disappointed that the Americans did not accept the services offered by AJG. They knew me, and they knew AJG.”
If indeed, as both Glogowski and Kozeny say, the American investors ignored the cheaper prices being offered by AJG, this may have been with good reason. The government confiscated AJG’s vouchers and options for some months, giving no clear reason. Only pressure from certain diplomatic quarters ensured their return. The US investors may have concluded that it was safer to enter the process only with Kozeny. A 70% discount on their options was hardly worthwhile if perhaps they’d never get to exercise them.
No reputations unsullied
Kozeny claims that he intends to defend himself with more than his account that options were sold not from his own inventory but from that of separate Azeri interests. “If this is going to get bloody, I not only want to be on top but I want to ensure that they know I can play their game,” he says. Kozeny, ever the turnaround artist, says that he intends to sue the plaintiffs themselves. “They tried to get me in the knees and hope I’d settle,” Kozeny says. “Fuck you.
Fuck you. If you want to play some games, let’s dance.” Kozeny says that he will sue the Americans for having unfairly dirtied his name in the saga following the investment’s failure. Moreover, he threatens to expose his suitors for wrongdoing themselves. “If you seek an equitable relief, your hands have to be clean,” he says, claiming that nobody will emerge from the failed venture with their reputation intact.
Meanwhile, the Azeri play may not yet be over.
A week or two before Euromoney met Kozeny, a presidential decree ruled that the life of the privatization options and vouchers is going to be extended for another number of years.
Privatization, Aliyev assures, is back on the table and while nothing is any clearer as to whether Socar will be privatized, the president claims once again that he is committed to putting worthwhile companies up for sale. He’s unlikely to be knocked over in the rush of foreign investors.
