Seladore Legal: Jailed businessman Ziyavudin Magomedov resists Russian conspiracy with London court victory

March 23, 2023
by

Russian businessman Ziyavudin Magomedov has scored a legal victory against Russian individuals and corporate entities whom he accuses of attempting to dismantle and appropriate his estimated $15 billion business empire.

A newly-revealed ruling by the London Court of International Arbitration (LCIA) shows that Mr Magomedov’s former joint venture partner, Texas Pacific Group (TPG), exploited his incarceration and struck a secret deal to sell its interest in FESCO, which owns the port of Vladivostok and other important transport assets in Russia.

The ruling affirms TPG’s obligation to have offered its FESCO stake to Mr Magomedov and raises serious questions about the conduct of the US private equity giant and its leadership.

Mr Magomedov, owner of the Summa Group conglomerate, was arrested and jailed in Moscow in March 2018, pending a trial on unevidenced charges of embezzlement. As the Russian prosecutor’s judicial campaign against Mr Magomedov subsequently gathered pace, TPG’s Chairman David Bonderman reneged on personal assurances given to Mr Magomedov and instead aligned himself with Mr Magomedov’s enemies in agreeing to sell the FESCO stake to businessman Mikhail Rabinovich.

The finding of wrongdoing by the LCIA Tribunal is welcomed by Mr Magomedov.

Rabinovich is alleged in court documents filed by Mr Magomedov to have been acting as a proxy for ROSATOM, the state atomic agency. Numerous local and international media have reported that FESCO will ultimately be transferred into the ownership of ROSATOM.

The LCIA’s ruling required TPG’s 17 per cent FESCO stake to be re-sold to Mr Magomedov at a huge discount to its true value.  However, the Russian courts immediately responded with far-reaching confiscation orders. The ownership structures via which Mr Magomedov holds his vast stake in FESCO have now had their underlying shares registered in Russia purportedly confiscated. If those confiscations (along with others) are upheld in Russia, Mr Magomedov’s losses will run into tens of billions of dollars. He intends to pursue further legal action to seek compensation for those losses.

LCIA Tribunal awards are usually confidential, but this award has been placed into the public domain by the Russian prosecutor, who submitted it as evidence in public hearings during the confiscation proceedings in Moscow.

Mr Magomedov was arrested on charges of embezzlement which he and his legal team argue are false and incoherent. He spent nearly five years awaiting trial, incarcerated in an austere Moscow prison run by the FSB, Russia’s secret intelligence service. In December 2022, he was handed a 19-year jail sentence by a Moscow judge whose verdict appeared to uncritically parrot the prosecution’s case.

Mr Magomedov strongly denies any wrongdoing. The investigation into his alleged crimes was conducted by Nikolai Budilo, who oversaw the notorious investigation into Hermitage Capital, which led to the death in custody of lawyer Sergey Magnitsky. Budilo now occupies a senior management position at Russian state-owned company Transneft. Transneft itself is accused by Mr Magomedov of orchestrating the confiscation of significant assets owned by him and his brother

Both his conviction and the confiscations are being appealed.

Ziyavudin Magomedov said:“I am deeply disappointed by the actions of those, including TPG’s founder David Bonderman, whom I believe misled me, betrayed me, and supported an unlawful raid against me. I will continue to address these wrongs committed against me, both through the English courts and elsewhere outside Russia – where I will obtain a fair hearing and the actions of my adversaries will be properly scrutinised.

“With the help of my lawyers and the support of my family, my aim is to restore justice and recover my rightful possessions.”

London-headquartered law firm Seladore Legal is advising Mr Magomedov.

About Ziyavudin Magomedov

Born in 1968 in Makhachkala, Dagestan, Mr Magomedov is one of Russia’s most successful businessmen, having built a conglomerate, Summa Group, focused on transport, construction, management and logistics, and with annual revenues of $10 billion. He also invested heavily in a number of high-profile western technology projects – including Virgin Hyperloop One, where he served as co-executive chairman.

Mr Magomedov established the PERI Foundation to support conservation, and famously helped to finance the restoration of the Bolshoi Theatre in 2011. A long-term advocate for his home region of Dagestan, he has also supported numerous projects there, funding a range of organisations and activities including orphanages, schools, mosques, and social relief. Over nearly two decades, he has given financial assistance worth more than $100 million to a wide range of good causes in the areas of culture and heritage, education and scientific research, sports and social causes.

Attack on Mr Magomedov’s business interests

Having consistently pursued an independent path in his business career, Mr Magomedov fell foul of powerful interests with senior government connections in the years leading up to March 2018, when he was arrested and imprisoned on embezzlement charges.

Shortly after his arrest, a Russian court froze a long list of assets with a collective value of several billion dollars – dwarfing the $180 million damage alleged in the criminal proceedings. In 2022, and without hearing any witness evidence, a separate order was made confiscating $750 million at Sberbank belonging to Mr Magomedov and his family.

Following Mr Magomedov’s conviction in December 2022, the Russian prosecutor has applied to confiscate all frozen assets in their entirety. This is despite the hugely greater value of those assets compared to the alleged criminal damage; and the fact that, according to Mr Magomedov’s submissions in various civil proceedings, the prosecutor has presented absolutely no evidence to substantiate an allegation that the frozen assets represent the proceeds of the crimes allegedly committed (or any crime).

Since December, other civil cases have been brought to add to this alleged legal persecution, including additional claims on Mr Magomedov’s assets from the Russian prosecutor and from private-sector corporate raiders conspiring with state entities. Many of these actions target Mr Magomedov’s interests in FESCO in particular, as well as those of other FESCO shareholders.

Video evidence has come to light suggesting that a concerted multi-pronged attack on Mr Magomedov’s ownership was planned in advance. The governor of Primorsk was filmed as early as November 2020 telling FESCO employees that the Russian government had decided that ROSATOM, the state atomic energy company, was to become the owner of FESCO. Numerous local and international media have reported that FESCO’s assets are likely to be auctioned to ROSATOM.

The criminal case

The charges levelled against Mr Magomedov related to alleged embezzlement of funds arising from public procurement contracts, including some that related to infrastructure required for the 2018 football World Cup, hosted by Russia. The prosecuting authorities claimed the alleged embezzlement caused 11 billion roubles of damage to the state and third parties (approximately $145 million at today’s exchange rates).

Mr Magomedov strenuously denies all accusations of wrongdoing. Following what his legal teams has argued was a show-trial, he was convicted by a Moscow judge whose verdict simply repeated much of the prosecution’s case. His brother Magomed and other co-accused were also handed lengthy prison sentences. The conviction is being appealed.

At the FSB’s request, Mr Magomedov’s trial was heard in private and without media reporting.

During the trial, the Criminal Court granted nearly every application the prosecution made, providing only occasional justifications and ignoring the fact that, in a case consisting of more than 749 volumes of case files, there was no evidence to support charges of embezzlement by Mr Magomedov’s companies. On the contrary, it will be argued that the evidence in respect of all of the public procurement contracts cited in the case showed that they had been lawfully obtained and duly fulfilled.

In many instances, there was no evidence in the “real world” of what prosecutors alleged were construction defects. For example, expert reports and parallel judgments in respect of the Kaliningrad Stadium project confirmed both that the contracted work was carried out properly and in full, and that there were no operating issues. Likewise, the Krestovsky Island project was completed and the work of Mr Magomedov’s company acknowledged as acceptable by the developer – yet, without explanation, the prosecution insisted that the payment made for this work was “stolen”.

Another charge brought by the prosecution was that Mr Magomedov’s company Stroynovatsiya had wrongly profited from the Kyzyl-Kyragino railway project. Yet the case file consisted of four separate court decisions, supported by expert evidence, demonstrating the opposite: that the company performed its obligations under the contract, and was in fact entitled to additional payments.

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