Bill Browder - Red notice

Chrystia filed a long story that same week. It was immediately picked up by Reuters, Bloomberg, the Wall Street Journal , and the local English-language daily, the Moscow Times . Over the next few weeks, Sidanco’s dilutive share issue became the cause célèbre that everyone who was interested in Russian financial markets talked about. The same people also talked about how long I was going to survive.

It seemed to me that Potanin would now either have to retreat and cancel the issue or include us in it. Instead of folding, though, Potanin contrived to escalate. He and Boris Jordan held a series of press conferences and briefings in an attempt to justify their actions. But rather than convince people that he was right and I was wrong, all he did was keep the story alive.

The major downside to what I was doing was that I was seriously disrespecting a Russian oligarch in public, and in Russia that had often led to lethal results in the past. The imagination is a horrible thing when it’s preoccupied with exactly how someone might try to kill you. Car bomb? Sniper? Poison? The only time I felt truly safe was when I got off the plane at Heathrow during my visits to London.

It also didn’t help that there’d been a recent case just like mine. An American named Paul Tatum, who’d been in Moscow since 1985, ended up in a big fight over his ownership of Moscow’s Radisson Slavyanskaya Hotel. During the dispute he published a full-page ad in a local paper accusing his partner of blackmail — not unlike what I had done in accusing Potanin of attempting to steal from me. Shortly after the ad came out, on November 3, 1996, and despite wearing a bulletproof vest, Tatum was shot dead in an underpass near the hotel. To this day, nobody has been prosecuted for his murder.

It wasn’t a stretch for me to think that I could be the next Paul Tatum.

Naturally, I took precautions, and I trusted the fifteen bodyguards Edmond had assigned to me. Throughout the conflict, whenever I moved around Moscow I’d travel in a convoy made up of a lead car, two side cars, and a trail car. Near my home, the lead car would peel off so that two of the guards could arrive a few minutes before the rest and check for bombs or snipers. Then the other cars would pull up and more guards would jump out, create a protective cordon, and take me safely into the building. Once I was upstairs, two men sat on my sofa with loaded submachine guns as I tried to sleep. Some of my American friends thought this arrangement was pretty cool, but I can definitively say that there’s nothing cool about having giant bodyguards armed to the teeth in your home at all times, even if they are there for your safety.

With stage two also having failed, we enacted stage three of our plan to stop Potanin. It was a desperate play, and if I didn’t succeed I wasn’t sure what I would do or how my business would survive.

This last effort started with a meeting with Dmitry Vasiliev, chairman of the Russian Federal Securities and Exchange Commission (FSEC).

I met Vasiliev, a small, wiry man with steel-rimmed glasses and an intense stare, at his office in a block of Soviet-era government buildings and told him the story. He listened carefully, and when I was finished I asked if he could help.

His answer was a simple question: «Have they broken the law?»

«Of course they have».

He removed his glasses to clean one of the lenses with a neatly folded handkerchief. «Here’s how it works. If you believe you have a bona fide complaint, write up a detailed description of Mr. Potanin’s transgressions and file it with us. Then we’ll consider it and respond in due course».

I wasn’t sure if he was encouraging me or brushing me off, but I chose to take him at his word. I rushed back to the office, called in a team of lawyers, and had them draw up a detailed complaint. When we were finished, we had a two-hundred-page document in Russian reciting all the laws we thought the dilutive share issue would have broken. I submitted it the day it was completed, eager and nervous with anticipation.

To my surprise, two days later an article in red appeared across the Reuters screen: «FSEC to Investigate Cases of Violating Investors’ Rights». We were shocked. It looked as if Vasiliev was actually going to take on Potanin.

All the same, I was uncertain about what would happen during this investigation. It wasn’t just the foreigner versus the oligarch anymore. Vasiliev was in the game too, and because he was Russian he was probably more vulnerable. It didn’t matter that he was the head of the FSEC. Anything could happen.

Throughout the following weeks as Vasiliev did his job, I held daily telephone briefings with Edmond’s deputies in New York regarding Sidanco, and I was forced to give them increasingly lukewarm reports. I learned that Edmond had begun to lose confidence in my ability to sort out this situation.

I wasn’t sure what Edmond was up to, but the trepidation in his voice and the frequency of calls from Sandy and his legal team in New York suggested something wasn’t right.

It became clear when one of my brokers called to say that he had spotted Sandy in the lobby of the Kempinski Hotel. There was only one reason why he would be in Moscow without my knowledge — to negotiate with Potanin behind my back.

I couldn’t believe it. If I was right, this would have projected total weakness on our side. Potanin and Boris Jordan were probably chuckling at our internal disarray.

I called Safra’s general counsel in New York and asked, «Have you sent Sandy to Moscow to negotiate with Potanin?» There was a stunned silence. I wasn’t supposed to know, and he was embarrassed. He collected himself before saying, «Bill, I’m sorry, but you’re way out of your league here. This is serious business involving a lot of money. I think it’s best if you let us take over from here».

He may have been right if this were New York, where the courts worked and a sixty-two-year-old Wall Street lawyer was more capable than a thirty-three-year-old hedge fund manager — but this was Russia and the rules were different. I replied, «With respect, you have no idea what you’re doing here. If you show even the smallest sign of weakness to these guys, our investors will lose everything and that will be on you». I was emphatic and asked him at least to give me some time to see my approach through to the end. He was resistant, but said he would check with Edmond. He called me back late that evening and grudgingly said, «Edmond will give you ten more days. After that, if nothing’s happened, we’re taking over».

I called Vasiliev’s office the next day to try to find out where he stood on his investigation, but his secretary told me he was unavailable. I called our lawyers and asked if they could estimate how long the FSEC might take to make a decision. They had no idea.

As the days ticked by, I had daily calls with Safra’s general counsel. Things didn’t look good. By day six, he said, «Look, Bill, we promised you ten days, but nothing seems to be happening. Sandy’s going to come back to Moscow on Monday to see Potanin. We appreciate all that you’ve done, but it’s not working».

I went home that night feeling as bad as I’d ever felt. Not only was I being screwed by the Russians, but my business partner had lost confidence in me. We would probably get 10 or 20 percent of what was being taken by Potanin if we were lucky, and this was probably the end of my partnership with Safra. For all intents and purposes, this was the end of Hermitage Capital.

The next morning I dragged myself into the office with the intention of controlling the damage any way I could. But I didn’t have to. Without any warning, a fax arrived with a printout of the front page of the Financial Times . The headline read, «Watchdog Annuls Sidanco Bond Issue». Vasiliev had shut the whole dilutive share issue down.