Investing in Russia: The Calvey Affair and Its Market Implications

Contents:

• The Beginning of a High-Profile Case: Michael Calvey's Arrest
• Baring Vostok's Investment History
• Reasons for Detention: Conflict of Interest
• Public Reaction and Support for Calvey
• Financial Accusations against the Businessman
• The Court's Verdict: Results and Consequences

The Beginning of a High-Profile Case: The Arrest of Michael Calvey

On February 15, 2019, the arrest of Michael Calvey and his colleagues shocked Russia's business community. The case, which resulted in the conviction of seven people, began with a statement from Vostochny Bank shareholder Sherzod Yusupov. He had long collaborated with Artem Avetisyan, the bank's second-largest co-owner, who controlled 32% of the shares, while the Baring Vostok fund owned 52%. This case became a significant event in the country's financial sector, raising numerous questions about the transparency and fairness of the judicial system. The arrest of such prominent business figures highlights pressing issues of corporate governance and investment protection in Russia.

In addition to Calvey, those arrested included his fund partners: Philippe Delpal, Vagan Abgaryan, and Ivan Zyuzin, all of whom were members of the board of directors of Vostochny Bank in 2017. Other prominent figures were also detained, including Maxim Vladimirov, CEO of the First Collection Bureau, and Alexey Kordichev, advisor to the chairman of the board of Norvik Bank and former head of Vostochny Bank. These arrests highlight the importance of these cases in the financial sector and their impact on the market.

Baring Vostok's Investment History

Baring Vostok is an investment group that has been engaged in direct investments in the Russian market since 1994. For more than two and a half decades, the company has invested over $2.8 billion in over 80 projects in Russia, Kazakhstan and Ukraine. Among Baring Vostok's successful investments are such companies as Yandex, Ozon, VkusVill and Tinkoff Bank. These investments contributed to the development of innovative technologies and improved the quality of services in the regions where it operates. Baring Vostok continues to actively seek new opportunities for investment and support of entrepreneurship in Eastern Europe.

According to information provided on the Baring Vostok website, the fund has successfully completed 47 projects, demonstrating an intra-disciplinary rate of return of approximately 38%. Typically, Baring Vostok implements no more than four projects per year, with investments ranging from 30 to 200 million dollars. The founder and managing partner of the fund is Michael Calvey, who plays a key role in the strategic development and investment management. The fund continues to actively seek new opportunities to invest in promising projects, confirming its reputation as a reliable player in the market.

Reasons for arrest: conflict of interest

Before the arrest, a shareholder conflict arose at Vostochny Bank between representatives of Baring Vostok and Avetisyan. The main reason for the disagreement was the need to recapitalize the bank following the takeover of UniCredit Bank in January 2017. Avetisyan planned to buy back additional shares to strengthen his control over the bank, but ran into financial difficulties. This situation led to a deterioration in relations between shareholders and created the preconditions for further legal proceedings. According to Kommersant, Avetisyan did not have the necessary funds to buy back shares, and an additional share issue would only worsen his situation by reducing his stake in the company. While Baring Vostok had the resources to purchase shares, it showed no desire to increase its investment and planned to exit the asset. This led to the initiation of legal proceedings in London, and the bank experienced frequent management changes. The situation highlights the market instability and the risks associated with investing in such assets.

Public Reaction and Support for Calvey

Bill Calvey's arrest has caused a significant stir in the business community. The Russian Union of Industrialists and Entrepreneurs, as well as foreign chambers of commerce, appealed to the head of the Investigative Committee, Alexander Bastrykin, with a request to change Calvey's preventive measure to house arrest, which was ultimately granted. Kirill Dmitriev, head of the Russian Direct Investment Fund, also supported this petition. This situation highlights the importance of protecting the interests of foreign investors in Russia and the need for a balanced approach to law enforcement in the business sector.

Influential figures have spoken out in defense of Michael Calvey, including Yandex CEO Arkady Volozh, Accounts Chamber Chairman Alexei Kudrin, Presidential Special Representative Anatoly Chubais, and Sberbank CEO Herman Gref. These figures emphasize Calvey's importance to the Russian economy and his contribution to the development of the investment environment. The support of such authorities demonstrates a high level of trust in his professionalism and business reputation.

Financial Accusations against a Businessman

In 2015, American investor Michael Calvey and his investment company, Baring Vostok, found themselves at the center of a high-profile criminal case. They were accused of organizing the illegal issuance of loans that were supposed to be repaid, but in fact became non-repayable. Investigators allege that Calvey and his team initiated two loans totaling over 2.5 billion rubles through Vostochny Bank, a bank they controlled. This led to serious financial consequences for both the bank and its clients, undermining trust in financial institutions in Russia. The case has received widespread attention, raising questions about the legality of investor actions and the transparency of financial transactions in the country.

The prosecution alleges that the funds were transferred under the guise of increasing working capital, but in reality they were stolen. As a result of the transaction, Vostochny received 59.9% of the shares of International Financial Technology Group (IFTG), the real value of which was estimated at 254 million rubles. This raised numerous questions about the appropriateness of the transaction and the true intentions of the defendants. This situation highlights the importance of transparency in financial transactions and the need for thorough review of corporate governance transactions.

Despite the serious charges, the defendants firmly maintained their innocence. Calvey emphasized that the loans issued by Vostochny Bank were intended to repay debts to the Cypriot company BrokerCreditService in the amount of 2.5 billion rubles. He also noted that the value of the IFTG share package transferred as part of the settlement agreement significantly exceeded the amount of the loan obligations. These arguments highlight the complexity of the case and the need for a thorough analysis of all the circumstances. By the end of 2020, significant developments occurred in the case involving Vostochny Bank and PKB. These organizations reached a settlement agreement, which included a payment of 2.5 billion rubles—the amount the prosecution had charged Kirill Calvey and his colleagues. As a result, the bank dropped the civil suit, significantly changing the direction of the investigation. In March 2021, Sovcombank announced the signing of agreements with Baring Vostok funds and other partners to acquire Vostochny Bank. The move marks a significant milestone in a complex story involving financial disputes and corporate conflicts.

Court Verdict: Results and Consequences

On August 6, 2023, the Meshchansky Court of Moscow issued an important decision that has influenced legal practice in Russia. The trial ended with suspended sentences for several significant figures in the investment sector. The founder of the investment fund Baring Vostok, Michael Calvey, was sentenced to 5.5 years in prison, suspended. His partner, Philippe Delpal, received a suspended sentence of 4.5 years. The fund's top managers, Abgaryan and Zyuzin, were sentenced to 4.5 and 5 years, respectively. Also receiving suspended sentences were former CEO of the First Collection Bureau Maxim Vladimirov (4 years) and former Investment Director of Vostochny, Alexander Tsakunov (4 years). Alexey Kordichev, who previously headed Vostochny, was sentenced to 3.5 years. These decisions highlight the importance of upholding the law in the investment sector and may impact the future of investment projects in the country.

This case has attracted the attention of both professionals and the general public. Experts emphasize that the lack of victims and actual damages calls into question the appropriateness of the charges. "The court failed to understand the merits of the case, which is effectively devoid of victims and actual damages, with the exception of the interests of Vostochny Bank. In the context of other similar cases, receiving a suspended sentence may be considered a success. However, being convicted of a non-existent crime is absolutely unacceptable," commented Michael Calvey, expressing dissatisfaction with the outcome of the trial. This case also raises questions about the fairness of the judicial system and its ability to protect citizens' rights.