The former Russian oil executive battling Toronto billionaire Alex Shnaider testified Thursday that he felt pressured to quickly sign a loan agreement handed to him by a lawyer for Mr. Shnaider at a Moscow police station, after an officer “casually” laid his gun on the table.
Michael Shtaif, a former executive with Russian oil firms TNK-BP and Yukos who now lives in Canada, is locked in a legal fight with Mr. Shnaider, who alleges in a civil lawsuit that Mr. Shtaif and a group of co-defendants tried to defraud him of a $50-million investment in a Russian oil joint venture.
Mr. Shtaif denies those allegations and alleges that the Russian-born Mr. Shnaider tried to push him out of the venture, bribed Russian police and influenced authorities there to pursue “spurious” charges against him.
Mr. Shnaider, whose Midland Group began in the Eastern European steel business but has expanded into real estate and other sectors, denies all of the allegations. None of the allegations have been proven. A civil trial in the case began in February and is expected to continue for weeks.
The account of how Mr. Shtaif ended up in a Moscow police station on the afternoon of July 11, 2006, involves a complicated transaction, being overseen by Mr. Shtaif and aimed at buying a Russian oil field, that went awry.
In a complex series of events relayed in court on Thursday, an advance payment of $12-million (U.S.) in promissory notes was held in safety deposit boxes in a Russian bank pending the closing of the 2006 deal. But allegations then surfaced about whether the vendor had valid title to the shares in the oil field. And an agreement about exchanging the promissory notes underwent “inadvertent” changes, giving the vendor premature access to them at the Moscow bank.
Mr. Shtaif testified that Mr. Shnaider and his partner in Midland, Eduard Shyfrin, “decided to use their police connections” to get the notes back. Mr. Shtaif said he accompanied a lawyer for Mr. Shnaider’s company to a Moscow police station to file a complaint about the $12-million. While there, Mr. Shtaif testified, he was also forced “under duress” to sign a loan agreement that restructured his joint venture with Mr. Shnaider, turning the billionaire’s $50-million investment into a loan and giving Mr. Shnaider majority control.
Present were Peter Ganus, an in-house lawyer for Midland in Russia, and a “Lieutenant-Colonel Kusakin” of the Russian police, Mr. Shtaif testified. The pair briefly stepped out of the room, he said, and then returned.
“When Mr. Kusakin came back, he casually pulled out a gun and put it on the table,” Mr. Shtaif told court. “…He didn’t point it at me … I got the message where it was going. I signed the agreement.”
Mr. Shtaif also testified that Mr. Shnaider paid a $525,000 (U.S.) “bribe” to Russian police in order to prompt them to quickly seize some of the promissory notes held in the bank. Mr. Shtaif told the court that Mr. Shnaider demanded that Mr. Shtaif himself cover this payment. A lawyer for Mr. Shnaider previously testified that the money went to “forensic consultants” to prompt police to try to recover the notes, and was not a bribe.
The issue with the promissory notes was not the first issue with the joint venture. The court has heard that the original corporate shell provided by Mr. Shtaif was a “sham” company created by a convicted Toronto fraudster, Irwin Boock, who was allegedly using the alias John Howard. Mr. Shtaif testified that he was not aware of the company’s fraudulent origins, or Mr. Howard’s alleged alter ego or past. The venture was later transferred to a new company, Koll Resources Ltd.
Court heard this week that a $10-million instalment toward a $70-million investment in the venture, pledged from a company controlled by the man calling himself Mr. Howard, failed to materialize. Mr. Shtaif testified that he did not intentionally mislead Mr. Shnaider about the payment.