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A man looks at a computer screen showing logos of Russian social network VKontakte. (SERGEI KARPUKHIN/REUTERS)
A man looks at a computer screen showing logos of Russian social network VKontakte. (SERGEI KARPUKHIN/REUTERS)

A Russian social network tale: Censorship and a CEO on the run Add to ...

Most chief executives in Russia would squirm upon receiving a letter from the country’s federal police demanding access to client information. Not Pavel Durov.

The 29-year-old founder of Russia’s hugely popular social media network, VKontakte, which means “in touch,” has a history of thumbing his nose at authority. So when the Federal Security Service, or FSB, came calling last April seeking personal data on Ukrainians who were using VK to vent their fury at Moscow, he reacted in trademark Durov fashion: He said no and took to his own VK page to post the FSB’s letter for all to see, along with another one from a prosecutor demanding VK shut down the page belonging to political activist Alexei Navalny. He added that his conscience wouldn’t allow him to take part in “political censorship.”

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This wasn’t Mr. Durov’s first brush with the authorities. But this time there were consequences.

Five days after his posts, Mr. Durov found himself removed as VK’s CEO and he’d fled the country. His abrupt departure left the website in a state of turmoil that’s still unfolding, ensnaring some of the country’s most powerful business figures. It also comes as President Vladimir Putin has begun tightening his grip on the Internet, leaving VK’s future in doubt.

The story of how Mr. Durov and VK came to this predicament is a tale of the rise of a social media phenomenon, the high-stakes corporate battles to control it, and Russia’s wider fight for free online expression under a heavy-handed regime.

The social networking site is often likened to a Russian version of Facebook, but it is more than that. In Eastern Europe, VK rules. With more than 260 million registered accounts and 60 million daily users, it dwarfs Facebook and other networks in the region. And it has grown into a go-to space for young Russians to share their thoughts and, often, their political frustrations.

Russia’s Facebook moment

Mr. Durov is often called the Russian Mark Zuckerberg and there are some similarities. Both began building social networks while at university, and both originally envisaged the sites as serving students searching for classmates. But there is much more to Mr. Durov, who was born in St. Petersburg but spent much of his childhood in Italy while his father Valery, a noted philologist, worked in Turin.

At first, Mr. Durov appeared to be following his father’s footsteps, studying philology at St. Petersburg State University and planning to become a translator. In his spare time, he created an online library for fellow students to help them share books and notes. That morphed into an online discussion forum and by 2005 the groundwork for VK had been laid. He officially launched the site a year later with help from two friends: Lev Leviev, who studied at McGill University in Montreal, and Viatcheslav Mirilashvili, a former university classmate who had gone to the United States. Within one year, VK had three million users and was well on its way to beating Facebook at its own game.

As VK grew, Mr. Durov became legendary for his colourful personality. He earned a reputation as a self-described libertarian who shunned smoking and drinking. He made no secret of his adoration for the Matrix movie trilogy and counted Steve Jobs and Che Guevara among his heroes.

His company developed a similarly flamboyant culture. VK operated out of the top floors of St. Petersburg’s historic Singer House, an iconic building known for its glass dome and giant globe. In keeping with startup stereotypes, its staff enjoy bean bag chairs, a Ping Pong table, a crossbow for target shooting and a boardroom decked out like a torture chamber. Mr. Durov took some flak in 2012 when he and some colleagues drifted paper airplanes made from 5,000 ruble notes ($155 U.S.) out the windows, causing scuffles among the crowds below. Mr. Durov later explained that he was showing his contempt for money.

Under his direction, and with a group of bright twentysomethings, VK’s user base grew quickly by offering a Facebook-like platform rooted in the Cyrillic alphabet. Soon no one in Eastern Europe could afford to ignore VK including famous athletes and Hollywood celebrities such as Kevin Spacey, Tom Cruise and Shakira who created pages on the site to tap into their Russian fan base.

But given Mr. Durov‘s free spirit and attitude toward authority, it wasn’t long before VK ran into powerful opponents. A turning point came in late 2011 during growing tension across Russia in the wake of parliamentary elections that returned Mr. Putin to power.

For years, Mr. Putin had been hands-off when it came to the Internet, but this was a moment of intense political frustration in Russia. Sites like VK gained currency by helping coalesce that anger, especially among a generation of younger users who had come of age in the post-Soviet era. Its wide reach broadened the appeal of protest rallies, which were no longer just political parties gathering a few hundred supporters, but something more organic and hip. And it became a platform for circulating cellphone camera footage posted to YouTube that purported to show evidence of ballot-box stuffing on voting day.

VK nourished the largest public rallies those cities had seen in at least a decade. First, some 10,000 people gathered in Moscow, shouting “Russia without Putin!” Then another protest was called the following week, with VK pages hosting details of events in some 120 cities. Anywhere from 30,000 to 100,000 people turned up at a square in Moscow – estimates varied wildly – and 10,000 others gathered in St. Petersburg.

“The authorities in Russia, they were shocked by what happened in 2011 and 2012, and they don’t want a repetition,” said Konstantin von Eggert, an independent Russian journalist and commentator for Kommersant FM Radio.

The day before those rallies, Mr. Durov was summoned to the prosecutor’s office in St. Petersburg, where he refused to block protest groups’ profiles. But less than a year later, Russia began passing new Internet laws making it much harder for him to say no.

A power struggle emerges

Politics and Mr. Putin weren’t the only factors weighing on VK as it grew. In April, 2013, the company’s ownership changed, sowing the seeds for a battle over control.

Mr. Durov’s partners, Mr. Leviev and Mr. Mirilashvili, sold their combined 48-per-cent stake to United Capital Partners (UCP), a private investment group based in Moscow that some believed was acting on the interests of Mr. Putin’s close allies.

UCP is led by CEO Ilya Sherbovich, a former board member of the state oil company Rosneft. In interviews with The Globe and Mail, Mr. Sherbovich has flatly rejected speculation that he was acting as some sort of Putin agent. He says he wants to boost VK’s mediocre revenues, telling The Globe last year: “We want to change the way the company makes money.”

Nonetheless, the timing of the ownership change raised eyebrows. It came a day after investigators searched VK’s offices and Mr. Durov’s home over allegations he struck a police officer while driving – although the charges were later dropped. Mr. Durov‘s associates said the charges had been trumped up to intimidate him but others close to the company said the inquiry was legitimate. The perception of political pressure on the company lingered. In late May, 2013, Russia’s Federal Service for Supervision of Communications, Information Technology and Mass Media, or Roskomnadzor, put VK on a blacklist, only to lift the ban later the same day, saying it had been an error.

It was little more than six months later, in December, 2013, when Mr. Durov opened the FSB’s letter demanding information about Ukrainian users. He was already showing signs of wanting out. He’d reached a deal to sell his 12-per-cent stake in VK, held through a company called Bullion Development Ltd.

The buyer was Ivan Tavrin, the CEO of MegaFon, a Russian telecommunications provider. Megafon is controlled by USM Holdings Ltd., a Russian firm run by Alisher Usmanov, Russia’s richest man and a presumed Putin loyalist with an estimated net worth of $19.2-billion, according to Forbes. His business empire aside, Mr. Usmanov owns a stake in British soccer club FC Arsenal and a Victorian mansion in London that he bought for $84-million and reportedly renovated to include a large Roman-style bathing complex. Through USM, Mr. Usmanov also controls Mail.ru Group, a leading Russian Internet and telecom company that already owned 40 per cent of VK’s shares.

Estimates suggest the transaction netted Mr. Durov between $200-million and $300-million, and he pledged to stay on as CEO.

Mr. Tavrin wasted little time putting his stamp on the company and solidifying control for Mr. Usmanov. According to allegations in court filings, he began cleaning house, pressuring the company’s deputy CEO and the chief financial officer, brothers Ilya and Igor Perkopsky, to resign or be fired over allegations of misconduct. The men were replaced by people with connections to USM and MegaFon.

Then in March of this year, Mr. Tavrin sold his 12-per-cent stake to Mr. Usmanov’s company, Mail.ru Group. That set up an ownership deadlock. UCP owns 48 per cent of the social network and Mail.ru now owns 52 per cent, but because of VK’s peculiar management structure, the company has just four directors and each group appoints two. The result is that neither shareholder group can make a decision of any substance without agreement from the other.

Lawsuits and leverage

By early 2014, Mr. Durov felt the strain of the ownership struggle. Russia was also in the midst of a growing battle with Ukraine over that country’s future, which was playing out in comments on VK. A week after Mr. Tavrin sold his shares to Mail.ru, VK’s board received a resignation letter from Mr. Durov, dated March 21, 2014.

Mr. Durov wrote on his VK page that in the past year, “the freedom of action of the CEO in managing the company [has been] significantly reduced. It is becoming increasingly difficult to defend those principles which were once laid [as] the foundation of our social network.” With trademark irreverence, the post ended with a picture of two leaping dolphins and the caption, “So long and thanks for all the fish.”

“He felt he couldn’t withstand the pressure,” said Anton Nossik, a well-known Russian blogger and online media expert. “Usmanov was behind Durov all the way until the moment when, in the Ukrainian situation, in the wartime situation, Usmanov could not help him deny the FSB access to Ukrainian users’ data.”

But in a bizarre twist, Mr. Durov changed course. In the early morning hours of April 3, 2014, he sent shareholders an e-mail saying his resignation had been an April Fool’s joke. The board was scheduled to meet that day to discuss naming a successor. And amid all this confusion, UCP was filing a lawsuit against Mr. Durov, Mail.ru Group and others, claiming Mr. Durov had used company resources to develop a competitor company.

That suit was filed in court on April 4, 2014 – a day after Mr. Durov tried to retract his resignation – in the British Virgin Islands, where most of the companies that own VK’s shares are registered. It alleges that Mr. Durov breached his fiduciary duties to VK by diverting resources to another business he is now helping run, and that Mail.ru’s representatives have taken de facto control of the company.

That wasn’t the only trouble brewing. VK also ran afoul of three major global music labels in early April – Sony Music Entertainment, Universal Music Group and Warner Music – which filed separate lawsuits alleging that a music streaming service built into VK profiles was filled with pirated songs.

On April 21, Mr. Durov did another about-face, announcing that he was, indeed, out as CEO and claiming on his VK page that he’d been fired. But the board ruled that he had in fact resigned. “Probably, in the Russian context, something like this was inevitable,” Mr. Durov wrote in a wistful VK post on April 21. He did not respond to repeated requests for interviews.

Two sides to the story

Ever since Mr. Durov left VK, there have been sharply different narratives about his motivations.

His supporters say he is a visionary who lived with modest means and drove the company with stunning success. But in its lawsuit, UCP alleges Mr. Durov spent well beyond his authority while in charge at VK. The suit alleges he paid himself $1.2-million in salary and another $700,000 in bonuses and holiday pay in 2012, when his contract entitled him to a base salary of about $205,000. It also alleges that between January and September of 2013, he filed $1.3-million in “travel expenses,” nearly $750,000 for “corporate events, trips and theatre tickets,” and $64,000 for tickets to the Sochi Olympics, all while receiving about $1.7-million in remuneration. The allegations have not been proven in court.

Lately, Mr. Durov has cast himself in the role of a political fugitive who had to leave Russia, and there is little doubt he genuinely felt pressured. When posting the letter from the FSB on VK, he noted that he had had “to sacrifice a lot,” but it was worth it to keep “a clean conscience and ideals that I am willing to defend.”

UCP and Mr. Sherbovich see things differently and are now going after Mr. Durov over his new venture, a messenger service called Telegram.

Launched about a year ago, Telegram is a free mobile instant messaging service with more than 35 million users, similar to the popular WhatsApp. But Telegram bills itself as more secure, with “Secret Chats” using end-to-end encryption that leave no trace on servers and can even be set to self-destruct. Mr. Durov supported and helped build it while still CEO at VK, along with his brother, Nikolai Durov, a shy but brilliant mathematical mind who was VK’s chief technology officer until he, too, left the company.

The allure of Telegram’s secure messaging is obvious for Russian political activists, and it is easy to imagine how it would benefit from having a self-styled fugitive from Russian authorities as its public face.

UCP argues that the new app is a direct competitor to VK’s own instant messaging product. It also alleges in court that Mr. Durov created it using VK’s resources.

“We believe that Mr. Durov breached his fiduciary duties to shareholders and diverted an important corporate opportunity that rightfully belonged to VK to himself and, moreover, used the resources of VK to support his personal business,” Victoria Lazareva, co-managing partner at UCP, said in an e-mail.

The blogger Mr. Nossik, on the other hand, dismisses that as “another way to attack Durov.”

The UCP suit is just one of several legal entanglements that have left the company reeling. Mail.ru has sued UCP in a London court, contesting UCP’s purchase of its 48-per-cent stake last year, while Mr. Durov has sued UCP in the U.S., accusing it of “racketeering” over its attempts to gain control of Telegram.

Attempts to reach Telegram and Mail.ru Group were not returned. A VK spokesman, George Lobushkin, declined to comment.

An uncertain future

His legal woes aside, Mr. Durov is pressing ahead with Telegram. Two days after his ouster from VK, he wrote on his Facebook page that he and 12 engineers “have a temporary HQ in Central Europe, and we are now looking for a permanent base to work from” and “to develop our projects with privacy and freedom of speech in mind.” Telegram’s website says it is based in Berlin, and has financial and technological backing from the Durov brothers.

Nearly three months after he left VK, the company is still without a CEO as shareholders battle over who should succeed him.

It isn’t for lack of trying. More than once, the Mail.ru shareholders have proposed Boris Dobrodeev, a current VK employee, as Mr. Durov’s successor. But UCP refused to approve him over concerns that he is not independent enough. He used to work at Mr. Usmanov’s USM and is the son of Oleg Dobrodeev, the head of Russia’s largest state-run media corporation.

There are other advantages for Mr. Usmanov if he gains full control of VK. His group also owns 100 per cent of Odnoklassniki, Russia’s next most popular social network, and it would have a near-monopoly in the regional market if it were to take over VK outright.

UCP says it wants to hire a headhunter to compile a shortlist, and has put forward two candidates of its own – the VK co-founder Mr. Leviev, and Alexei Zakharov, CEO of the online recruiting site Superjob.ru. UCP might even agree to Mr. Dobrodeev as CEO if Mail.ru meets a number of conditions, including setting key performance indicators for the job and helping VK gain control of Telegram, but Mail.ru has resisted.

“It is certainly not in the best interest of the company or its users to function without a CEO for such a long period of time,” Ms. Lazareva told The Globe and Mail. “It is a huge disappointment to us that Mail.ru refuses to agree to a proper and transparent search process.”

Whoever controls VK could have far-reaching implications for millions of social media users in Eastern Europe. Mr. Putin has treated the Internet warily of late, noting in an April speech that it started “as a special CIA project” and that “special services are still at the centre of things.”

In May, the Russian President signed a restrictive new law requiring online voices who get more than 3,000 daily hits per page to register as a media organization, giving them all the legal responsibilities of a publisher. And on July 4, Russia’s parliament passed a law mandating Internet companies to store Russians’ personal data inside the country. Critics fear it is designed to track meddlesome users by ensuring easy access to their personal information, and could force foreign-run social media like Facebook and Twitter to close down in Russia.

VKontakte is still growing, but whether it will continue to thrive in such an environment remains to be seen. Meanwhile, Mr. Durov’s whereabouts are still unknown, and he is holding tightly to his libertarian instincts – his latest appearance on social media was also on July 4, quoting from the American Declaration of Independence.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness,” he wrote.

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