Plaintiffs Morgenthow and Latham, New York International Insurance Group, and Oriental XL Funds, by their attorneys, for their complaint against the defendants, respectfully allege, upon personal knowledge as to themselves and upon information and belief as to all other matters, as follows:
INTRODUCTION AND SUMMARY OF CLAIMS
- This action is brought by three private investment trusts to recover losses proximately caused by the fraud of the defendants.
- Essentially, defendants Bank of New York Company, Inc. and Bank of New York (hereinafter referred to as "BONY"), acting in concert with corrupt officials of Joint Stock Bank Inkombank ("Inkombank"), a now defunct Russian Bank which maintained a correspondent banking relationship with BONY, used BONY's credibility and stature fraudulently to induce the plaintiffs to refrain from redeeming a $40 million investment in Inkombank, by knowingly misrepresenting and concealing from the plaintiffs material facts which were justifiably relied upon by the plaintiffs to their ultimate detriment and damage.
- Specifically, defendants (i) knowingly and falsely misrepresented to the plaintiffs that Inkombank was a sound, reputable and reliable financial institution, and (ii) concealed from the plaintiffs that Inkombank's senior management were actively engaged in unlawful and criminal activities, which included, inter alia, theft of Inkombank's assets and money laundering. Ultimately, Inkombank collapsed in October of 1998, as a result of the aforesaid conduct and the systematic looting of its assets by the management of Inkombank.
- As a proximate cause of the defendants' fraud, plaintiffs suffered a total loss of their investment and the returns to be paid thereon.
PARTIES
Plaintiffs
- Morgenthow and Latham ("MORGENTHOW"") is a private investment trust declared under the laws of The Cayman Islands.
- Oriental XL Funds ("ORIENTAL" XL") is a private investment trust declared under the laws of The Cayman Islands.
- New York International Insurance Group ("NY International") is a private investment trust declared under the laws of The Cayman Islands.
- The current trustee of Morgenthow, Oriental XL and NY International is Boris Kuznetsov, whose New York address is c/o Law Offices of Alexander Fishkin, 350 Fifth Avenue, Suite 3304, New York, New York, 10118.
Defendants
- The Bank of New York Company, Inc. is a bank holding company organized under the laws of the State of New York, with its headquarters at One Wall Street, New York, New York, 10286. It is one of the largest bank holding companies in the United States.
- The Bank of New York is a New York New York banking corporation with its principal place of business at One Wall Street. It is a wholly-owned subsidiary of BONY Holding, and is the holding company's principal business. BONY is one of the oldest banks in the world, and the sixteenth largest bank in the United States based on total assets.
- Joint Stock Bank Inkombank ("Inkombank"), at all relevant times was one of the largest privately owned Russian banks, organized in 1988, existing under the laws of the Russian Federation and having a principal place of business in Moscow, Russia. Inkombank maintained a correspondent banking relationship with BONY and was BONY's largest and most active commercial relationship.. In 1994 Inkombank was infiltrated and eventually dominated by Russian organized figures tied to the Mogilevich Russian organized crime faction.(Note #1) As more fully described below Inkombank collapsed in the latter part of 1998, as a result of systematic looting of bank assets by its officers. In October of 1998 the Central Bank of Russia ("CBR") revoked Inkombank's license to conduct banking business for failure to comply with the banking laws of the Russian Federation, for failing to honor its obligations to creditors, and other improper conduct.
Individuals Relevant to This Action
- Vladimir I. Doudkin ("Doudkin") at all relevant times was a Russian citizen and a resident of Moscow and Cyprus. At all relevant times Doudkin was one of the principals of Inkombank, holding the title "deputy chairman in charge of international banking." Together with Gurfinkel, Doudkin was the architect of Inkombank's looting and reallocation scheme described below.
- Natasha Gurfinkel ("GURFINKEL"), beginning in June 1992 and at all relevant times thereafter, served as a senior vice president of BONY, in charge of its Eastern Europe Division. Before that, Gurfinkel was vice president and relationship officer for Eastern Europe and the Soviet Union, a section of the Europe division. A native born Russian, she quickly became the pre-eminent Western banking representative in Russian banking and political circles. Gurfinkel was suspended from BONY in August 1999 during the FBI's investigation of BONY's alleged involvement with ROC in money laundering. On February 17, 2000, Gurfinkel filed a lawsuit against BONY and three of its senior officers, Thomas A. Renyi, CEO, Alan R. Griffiths, vice chairman of the board, and Charles E. Rappold II, chief administrative officer, in the Moscow District Court for Savelovsky District. Gurfinkel alleges, inter alia, that BONY and the above named officers libeled her "to cover up for the bank's employees of American origin who indeed were connected with the accounts which are subject of the [FBI] investigation."
- Robert (Bob) Klein (KLEIN") at all relevant times held himself out to be "special consultant" for BONY stationed in the Geneva office of BONY's subsidiary-affiliate, Bank of New York - InterMaritime Banque ("BONY-IMB").
- Vladimir Viktorovich Vinogradov ("Vinogradov") at all relevant times was and still is a Russian citizen and a resident of Moscow. At all relevant times Vinogradov was Inkombank's chairman and CEO.
- Alexei Makarov ("Makarov") at all relevant times was and still is a Russian citizen and a resident of Moscow. At all times, Makarov was one of the principals of Inkombank holding the title of "special consultant to the chairman."
Plaintiffs' Investment in Inkombank
- In 1993, plaintiffs Morgenthow and Latham ("Morgenthow""), New York International Insurance Group ("New York International"), and Oriental XL Funds ("Oriental" XL") (hereinafter the "investors" or the "plaintiffs"), three private investment trusts, entered into written share purchase agreements with Inkombank, a privately owned Russian bank domiciled in Moscow and organized in 1988 under the laws of the Russian Federation.
- Pursuant to the agreements, Morgenthow and Oriental XL each purchased 7,000 shares of Inkombank, and New York International purchased 6,000 shares, representing a total investment of $40 million. The agreements provided that the investors would receive a guaranteed annual return on their investment of 12%, to be paid in the form of dividends.
- The agreements also gave the investors the right to have their shares redeemed after 36 months at the price the investors paid for them (the "right to redeem") "at the counters of the Bank of New York".
- On June 7, 1996, the Central Bank of Russia ("CBR") issued a report of an audit conducted by CBR task force pursuant to a special order of the CBR No. 23-0-4p of January 9, 1996. The 280 page CBR report was highly critical of Inkombank, noting that the auditors uncovered "multitude of improprieties and illegalities in the activity of Inkombank ... [that] are of such nature that their negative impact appears grave and permanent such which may not be cured by a mere passage of several months." CBR `Auditors also noted the following:
- "Inkombank's charter fund is structurally flawed, maintained with numerous violations of law and directives of the Central Bank of the Russian Federation. The auditors uncovered serious violations in own stock purchases in all four registered stock issues, including violations of foreign exchange laws. The restructuring of the charter fund included numerous practices, which are violative of the rights of bank's shareholders. The investigation revealed a systematic lack of compliance with accounting rules and unjustifiable large credits extended for the accounts of some shareholders."
- "No system of formation and utilization of the reserve funds, or the funds of economic incentive exists. These funds are used improperly commingling deposits and credits. According to auditors' calculations the aggregate amount of faulty balances in the first financial report exceeds 197 billion rubles(Note # 2). This includes improper accounting and use of funds in the balance accounts ## 011, 016, and 018, which reflects unjustified increase of the Bank's capital in the amount of at least 37 billion rubles."
- "Uncovered were very broad scale transactions involving redemption and sale of the Bank's own shares. During 1995, the Bank redeemed over 686 billion rubles of its own stock shares effecting its charter fund in the amount of 8,6 billion rubles. Transactions on balance account # 034 were not in accordance with accounting rules. Accounting of sale-purchases of its own stock improperly permitted the Bank to decrease its expenses by 247 billion rubles. Infractions in accounting of profits have also permitted the Bank to list as income approximately 207 billion rubles in stock purchases, never actually received. The losses of approximately 445 billion rubles resulting from its redemption of own stock, are improperly listed as assets on balance account # 195 and other balance accounts."
- "The Bank's credit policy involves unjustifiable risks. In both the rubles and hard currency loans, the share of unsecured credit is permanently high with significant portion consisting of interest-free credits. The larger portion of funds accounted in the balance accounts ## 195 and 085 (promissory notes in the Bank's portfolio) represent actually extensions of bad loans. Combined with defaulted loans accounted on balance accounts ## 055 and 620, these non-liquid assets listed in the consolidated statement as of 01.01.96 reach approximately 926 billion rubles. According to auditors' estimates this amount, in fact, is approaching 1 trillion rubles because certain portions of the loans, officially declared defaulted are of poor quality, where the interest does not accrue, and were previously extended any number of times. "
- "Significant violations of accounting rules is revealed in the accounts # 22 of the statement. Improper accounting transactions resulted in listing of fictitious assets on balance accounts ## 920 and 932 with a consequently distorted picture of Bank's funds on balance account # 018. At the same time, during the second half of 1995, the Bank's income was overstated by tens of billions of rubles."
- "Violations are uncovered in accounting for securities transactions, particularly pertaining to the short term Treasury Bills. Distorted picture of Bank's income and expenses were found upon in accounting of investments in corporate securities."
- "Accounting of foreign exchange transactions is maintained improperly; special attention must be paid to violations of accounting rules in conversion of dollar-to-ruble income. Bank's estimates of the hard currency is accounted for improperly"
- " Based on our analysis, we conclude that if the uncovered violations of accounting of Bank's income and expenses were not present the Bank's financial report for 1995 must show a loss of at least 257 billion rubles, instead of profit of 740,6 billion rubles, as reported by Inkombank."
- "Reports of the Bank, specifically those in the form No.2 (profit and loss) reflect distorted financial picture for a number of months."
- "Financial situation of the Bank is unstable. It is our opinion that the problem of non-liquidity of its assets have serious consequences for depositors and creditors of the Bank, and further may be exacerbated in the fall when the Bank's obligations to a large number of its depositors mature."
- "The Bank's capital is at least ten times lower what the Bank reported on its statement as of 01.01.96. Based on the available data, auditors conclude the law is violated also in accounting Bank's capital. Issues of Inkombank's non-compliance with financial laws and payments into compulsory reserve accounts may be addressed in more details upon thorough examination of depositors' funds, which the Bank aggressively resisted."
- "Violations and improprieties revealed by this audit are sufficient to warrant restrictions with respect to Inkombank's accepting deposits from individuals and opening new current accounts for customers other than Bank's shareholders."
- Alarmed by the findings of the CBR auditors, plaintiffs made a decision to exercise their right to redeem their shares for the original purchase price. Consequently, by letter dated August 4, 1996, plaintiffs' representative, Vladimir Portnoy ("Portnoy") wrote to Inkombank's chairman Vinogradov:
"On behalf of 'Morgenthow and Latham,' 'Oriental XL Funds' and 'New York International Insurance Group,' the undersigned informs you that in accordance with the clause 1.6 of the 'AGREEMENT PURCHASE OF JOINT STOCK BANK INKOMBANK SHARES PAYABLE IN HARD CURRENCY' bearing the date of June 17, 1993, above named companies demand the re-purchase of Inkombank stock issued on the 10th of August of 1993: >Morgenthow and Latham, Ltd.' - 7000 common shares in the amount of US $14 million (certificate # 159/2); 'Oriental XL Funds, Inc.' -7 000 common shares in the amount of US $14 million (certificate # 160/2); and >New York International Insurance Group, S.A.' - 6000 common shares in the amount of US $12 million (certificate o 161/2). We also inform you that in accordance with the clause 2.5.1 the above named companies demand the payment of the guaranteed dividends, calculated as 12% per annum, minus US $522,000, already paid." (Translated from Russian)
Copies of the letter were forwarded to Gurfinkel and Klein.
- Immediately thereafter, the defendants commenced a concerted effort to convince the investors to withdraw their redemption demand, assuring them that both Inkombank and their investment were safe and sound. Defendants, acting through their senior officers including Gurfinkel, misrepresented material facts which they knew to be false, and induced the plaintiffs to withdraw the exercise of their right to redeem.
- Throughout the month of August of 1996, Gurfinkel, Klein, and Makarov had numerous telephone and in-person conferences with plaintiffs' representatives seeking to convince the plaintiffs to leave their investment intact. They emphasized BONY's solidity and stature and BONY's confidence in Inkombank's stability based upon BONY-Inkombank "close relationship" and "long ranging business plans". For example:
a: on or about August 7, 1996, Klein telephoned Portnoy. Klein requested that the plaintiffs defer their demand until Inkombank's application for a representative office in the U.S. was approved. When confronted with the CBR report findings, Klein dismissed them as "nonsense" and "political gamesmanship" and assured Portnoy that the plaintiffs' investment was "safe and sound";
b: In mid-August 1996, Gurfinkel in a telephone conversation with plaintiffs' representative, stated that "BONY was aware of the CBR report since March" and that it was BONY's view that the report was "dogshit". Gurfinkel stated that at the behest of BONY's board she personally traveled to Moscow in early June of 1996 to meet with the top CBR officials and to express BONY's views concerning the stability and expanding operations of Inkombank in the United States. Gurfinkel conceded that Inkombank had "temporary liquidity shortness". However, Gurfinkel stated, BONY recently secured approval from the US Securities and Exchange Commission (the "SEC") for the issuance of the BONY's sponsored Inkombank's ADRs. Gurfinkel assured plaintiffs that as soon as the sale of the ADRs begins in September Inkombank will have "more cash than it would know what to do with". In order to further assure plaintiffs, Gurfinkel faxed them a copy of the letter she forwarded to the Chairman of the Federal Reserve Board dated According to a letter from Gurfinkel to Federal Reserve Board Chairman Alan Greenspan dated April 23, 1996, which gave high praises to Inkombank indicating that it was BONY's "largest and most active commercial relationship". The letter was sent in support of Inkombank's application to establish representative office in New York. Gurfinkel stated that BONY "worked long and hard" on this application and withdrawal of three major shareholders would have adverse consequences in the FRB's decision. "Once Inkombank's New York office is approved our shares would double in value", said Gurfinkel. Finally, Gurfinkel "confided" in the plaintiffs that she and other BONY's officers personally own significant equity in Inkombank stating "would we do that unless we knew this is safe and profitable?"
- Defendants knew that the foregoing representations were false but made them nonetheless to induce the plaintiff's to rely thereon.
- In fact, the plaintiffs did justifiably rely upon the defendants' misrepresentations and false assurances, based upon, among other things, the stature and credibility of BONY, a major, highly respected U.S. financial institution, and agreed to withdraw their demand to redeem.
- nknown to the plaintiffs, at the time of making these representations defendants knew them to be false and knew that Inkombank's senior management was in the process of implementing a scheme, more fully described below, calculated to nullify plaintiffs' shares and convert their investment to the their own use and benefit.
- BONY's principal motive for convincing the plaintiffs to leave their investment in Inkombank intact was that to bolster the appearance of Inkombank as a legitimate, financially sound institution, which BONY knew it was not. BONY had a significant financial motivation to prop up its principal Russian correspondent, including:
-. BONY, since early spring of 1992, and until Inkombank's demise in 1998, was Inkombank's chief correspondent bank in the West, handling most of its transactions in hard currency;
-. BONY depended upon Inkombank as its "largest and the most active commercial relationship ", as evidenced by a letter forwarded by BONY's senior vice president, Natasha Gurfinkel, to the Chairman of the Federal Reserve Board, Alan Greenspan.
-. Inkombank was BONY's "largest generator of fee income" (wire transfer fees), according to BONY internal memo, clearing in excess of 250 payments a day. In the first three months of 1996, BONY's revenues from Inkombank were $720,000.00, not including the significant revenues from Letters of Credit (the "L/C") and FOREX operations ("FX"). In addition BONY earned significant fee income by extending Inkombank credit, including FX and UFTD lines, and posting letters of credit on Inkombank's behalf.
-. In May of 1996, BONY announced its sponsorship of Inkombank's multi-million dollar American Depositary Receipt ("ADR") issue. (Symbol: IKMBY (OTC); CUSIP: 46625ZC101; Effective Date: May 28, 1996)
-. BONY enjoyed Inkombank's management's significant assistance in establishing BONY's presence in Russia, used Inkombank's facilities to collect credit data about other Russian banks and non-banking institutions and, through its referrals, acquired significant number of profitable Russian commercial accounts. Reciprocally, BONY provided Inkombank with introductions to U.S. businesses and governmental agencies, offered to Inkombank to "pick up" its closing accounts, vouched for Inkombank's management's expertise and integrity and lobbied on its behalf before governmental agencies, including the US Federal Reserve Board, US Securities and Exchange Commission, US Department of Agriculture and Eximbank.
-. BONY's senior management had virtually daily interaction with Inkombank's top management(Note # 3) and provided training to numerous Inkombank's managers and employees on all levels. Members of BONY's and Inkombank's senior management frequently traveled to Moscow and New York respectively, enjoying lavish receptions and extravagant entertainment offered by the respective hosts.
-. In sum, the relationship between the top managers of BONY and Inkombank was far greater in scope commercially and far more intimate personally than BONY's mere perfunctory carrying out of Inkombank's SWIFT orders as its banking correspondent.
-. Throughout the above described relationship BONY, as Inkombank's correspondent and transfer agent, effected on behalf of Inkombank, hundreds of thousands of third parties' payments and debits, amounting in the aggregate to billions of dollars per month. For example in the period of November 1 to November 30, 1993, BONY debited Inkombank's correspondent account with BONY #890-0056-96, for 3,131 items aggregating $1,850,262,413.58; from December 1 to December 31, 1993, BONY effected 3,079 payments in the aggregate amount of $2,166,975,944.61.
- In sum, Inkombank played a critical role in keeping BONY profitable and in perpetuating BONY as a predominant "player" in the largely corrupt Eastern European banking and industrial markets. Defendants also knew but concealed from the plaintiffs that in April of 1996, BONY was warned by Russian authorities about Inkombank's improprieties and that the Russian authorities questioned the "intimate" relationship between certain BONY's officers, including Gurfinkel, and Inkombank principals.
- On October 29, 1998, the Central Bank of Russia (the "CBR"") revoked Inkombank's license to conduct banking business "for failure to comply with the banking laws of the Russian Federation" and for failure to honor its obligations to creditors. Subsequently Inkombank was ordered liquidated. Plaintiffs lost their entire investment.
The Marketing of Inkombank's Bolstered Balance Sheet
- With the completion of the stock sale and the infusion of cash, the defendants immediately touted Inkombank's improved financials. By letter dated August 18, 1993 from Vinogradov, Inkombank's chairman and CEO, to Dmitry Vladislavovich Tulin, deputy chairman of the CBR, Inkombank reported the $40 million increase of Inkombank's charter fund. In addition, Inkombank's principals gave interviews to major Russian media. As a result, Inkombank's publicly traded shares in Russia rose by 30% in three days.
- Plaintiffs' purchase of Inkombank's stock was subsequently reflected in Inkombank's application to establish a representative office in New York, prepared with the active participation of the defendants and submitted in April 1995 to U.S. regulators. The plaintiffs were listed as Inkombank's largest shareholders.
The Fraudulent "Reallocation" of the Plaintiff's Shares
- In or about early December 1995, Makarov, Klein and Gurfinkel met in Balchuga Hotel in Moscow to discuss the concept of expelling the investors through the "reallocation" of plaintiff's shares to companies owned and/or controlled by Inkombank and certain representatives of BONY. It was decided that Makarov, Klein and Gurfinkel would work out the details of a reallocation and exchange drafts after the holiday season.
- By memo dated February 2, 1996, Klein reported to Vinogradov that he had met Gurfinkel in Zurich and exchanged written proposals concerning the re-allocation.
- On or about February 8, 1996, Gurfinkel met with Doudkin and Klein in Moscow to further discuss the reallocation scheme. Together they contacted Makarov in Cyprus and asked him to forward the final draft of the "re-allocation" chart via Ciphergraph, a proprietary electronic encryption system which was tailor developed at the commission of Doudkin, Gurfinkel and Klein in late 1992 for the sole purpose of ensuring the secrecy of international wire correspondence amongst the conspirators.
- On or about February 9, 1996, Makarov sent Gurfinkel a Ciphergram containing a document called "The Chart of Restructuring of the Charter Fund of AB Inkombank (2nd Issue)."(Note # 4) The chart memorialized a proposed scheme of backdated "re-allocation" of the plaintiffs' equity to ten other companies, a number of which were owned and/or controlled by the conspirators and others acting in concert with them. The section of the chart entitled "General Principles of Re-Allocation" identified the steps to be taken in the fraudulent "re-allocation" process, including annulling the plaintiffs' shares and assigning same to re-allocated to 10 new entities, backdating sham re-allocation documents to correspond to the issue of shares to Morgenthow and Latham, Oriental XL Funds and New York International in 1993; securing sham "confirmations" to CBR from BONY and/or BONY-IMB; assigning controlling interest to Aspirations Holdings, Ltd., an Cyprus shell company controlled by the conspirators; redeeming the shares so re-allocated and transferring illicit proceeds as follows: 45% through BONY's London branch and 55% through BONY-IMB.
- The "General Principles of Reallocation" section was followed by a table entitled "Principle Sketch," which illustrated how the shares were to be reallocated to the new entities, spelling out (by columns) the name of each "New Shareholder," its "Number of Shares," "Price in Rubles," and "Price in USD." According to the table, the plaintiffs' shares were to be reallocated to:
- JS "Inkom-Invest" - 5,000 shares priced at US $10,000,000.00
- ADS "Vneshstroykomplex" - 3,000 shares priced at US $6,000,000.00
- JSC "Nosta" - 2,500 shares priced at US $5,000,000.00
- Plant "Sokol" - 2,500 shares priced at US $5,000,000.00
- VO "Oboronexport" - 1,500 shares priced at US $3,000,000.00
- JS "Stavropolpolimer" - 1,500 shares priced at US $3,000,000.00
- Aspiration Holdings, Ltd. - 1,200 shares priced at US $2,400,000.00
- AK "Transneft" - 1,000 shares priced at US $2,000,000.00
- VAO "Tractoroexport" - 1,000 shares priced at US $2,000,000.00
- GPVO "Promsyrioimport" - 500 shares priced at US $1,000,000.00
The chart also showed the total number of shares "reallocated" as 19,700, and the total USD price as $39,400,000 -- i.e., 300 shares shy of the number of shares issued to the plaintiffs.
- On or about February 16, 1996, Gurfinkel forwarded to Makarov a Ciphergram in reply, stating that she "together with [her] boss" reviewed the chart of backdated "restructuring" and expressed concerns that the sham re-allocation may be detected by both the US and Russian regulators. Gurfinkel stated that she was particularly concerned about assigning significant amounts to Inkominvest "because it is not very difficult to figure out that this is our company, especially considering that we've transferred part of these $40M twice" Similarly, Gurfinkel was expressed concern about Aspirations Holdings stating "we've been beating this company to death in other transactions and nobody has any doubts that this is our marionette." Gurfinkel concluded her communication by stating "Boss is also very concerned that you learned of this [CBR] audit when the auditors were already knocking on your door. Why haven't our people in CBR warned us, so that we could prepare?"
- On or about February 17, 1996, Makarov responded by Ciphergraph assuring Gurfinkel that she need not worry because "all that the [CBR] auditors need is the confirmation of funds from a respectable western bank. Makarov also stated that Doudkin "will plant some agreement in English - you know well that nobody in the CBR will engage in translating it." Makarov advised Gurfinkel "calm your boss down and do not panic yourself - everything will be on a high level - the main thing is the BONY's confirmation, which nobody will be able (nor will want) to verify."
- Within hours after receiving the above Ciphergram from Makarov, Gurfinkel and Klein had a follow-up telephone conversation with Makarov in which it was agreed to proceed with the "reallocation" as described by Makarov.
- In late March of 1996 Klein met Makarov in London to further discuss the details of the re-allocation.
- Within a few days, still in March 1996, Gurfinkel met Makarov in Moscow and delivered a copy of the "re-allocation" restructuring chart with handwritten remarks by Gurfinkel and Turitzin, noting that the sham documents to be submitted "as evidence for CBR" should be original and bear "original signatures."
- In August 1998, Inkombank defaulted on a series of obligations. In September 1998, the CBR appointed outside administration to oversee Inkombank's affairs. On October 29, 1998, pursuant to Order No. OD-520 of the CBR, Inkombank's license to conduct banking business was revoked "for failure to comply with the banking laws of the Russian Federation, for failing to honor its obligations to creditors, and for defaulting on obligations." Several days before the revocation of Inkombank's license, the Chairman of Inkombank's board, Vladimir Groshev, publicly admitted that the bank's former management "had been placing assets outside of bank's control." Vladimir Dubinin, the then chairman of the Central Bank of Russia, publicly stated that Inkombank had been "looted apart." Vladimir Alekseyev, the then temporary receiver of Inkombank, confirmed that "the best assets of Inkombank were looted" by its former management. And Mr. Ralph-Dieter Montag-Girmes ("Girmes"), a financial consultant retained to assess Inkombank's financial position, publicly stated that "managers of Inkombank had stolen $1.5 billion in recent months through clever paper shuffling," and further:
"Inkombank pulled a swindle, in dealing with Western creditors and that's putting it mildly. If they [its former principals] flee the country to pursue a 'quiet life' abroad they would probably be arrested [in the West] even faster than here."
- Girmes added that Inkombank had been de facto "bankrupt" since July 1998, noting that in the last days of Inkombank's functioning "employees of [Inkom]bank headquarters in Moscow have been stealing everything from computers to expensive doorknobs..."
- Subsequently Inkombank was ordered liquidated. Plaintiffs lost their entire investment.
- The wrongful conduct engaged in by defendants was contrary to law, and in violation of their public duties and obligations under U.S. banking laws. The wrongful conduct was flagrant and willful, and shocking to the conscience, and warrants the imposition of punitive damages.
- Moreover, defendant's shocking conduct as alleged herein appears to have been but a small component of a broader pattern of fraud and misconduct engaged in by BONY and its officers in connection with their efforts to exploit the emerging and largely corrupt, post-Soviet private banking sector in Eastern Europe. Indeed, after an almost year long investigation jointly conducted by BONY's attorneys and Milberg Weiss Bershad Hynes & Lerach LLP, counsel for the BONY shareholders, ("Milberg Weiss"), resulted in amended derivative complaint filed on behalf of BONY's shareholders in the United States District Court for the Southern District of New York, in early September of this year. The shareholder derivative complaint alleges, in painstaking detail, that BONY and its officers engaged in a wide-ranging racketeering conspiracy, together with criminal banking elements in Russia, prominently including corrupt officials of Inkombank, which conspiracy involved a broad range of unlawful and criminal activities, mail fraud, wire fraud, money laundering, tax fraud and asset theft. A true copy of the said pleading is exhibited hereto.
- Additionally, two shareholder derivative actions detailing BONY's fraud and misfeasance have also been filed with this Court and are pending in IAS Part 10. The within action is closely related to said pending actions in IAS Part 10 and it is respectfully submitted that discovery in said cases should proceed jointly.
FIRST CAUSE OF ACTION
(for fraud)
- Plaintiffs repeat and reallege each and every foregoing allegation of this complaint as if fully set forth here.
- Defendants misrepresented and concealed material facts, knowing them to be false in order to induce the plaintiffs not to exercise their right to redeem.
- Defendants intended that the plaintiffs rely upon the aforesaid misrepresentations.
- Plaintiff's reliance upon defendants' misrepresentations was justified.
- As a result of the foregoing, plaintiff's have suffered financial harm.
WHEREFORE, the plaintiffs demand judgment as follows:
A. Awarding plaintiff Morgenthow & Latham actual damages in an amount to be determined at trial, presently believed to exceed USD 14,000,000.00 plus the guaranteed return of 12% from January 1994
B. Awarding plaintiff Oriental XL Funds actual damages in an amount to be determined at trial; presently believed to exceed USD 14,000,000.00 plus the guaranteed return of 12% from January 1994
C. Awarding to plaintiff New York International Insurance Group punitive damages in an amount to be determined at trial; presently believed to exceed USD 12,000,000.00 plus the guaranteed return of 12% from January 1994,
D. Awarding each plaintiff punitive damages in the amount to be determined at trial.
E. Awarding each plaintiff costs, interests, and reasonable counsel fees.
Dated: New York, New York
October 24,000
Harold M. Hoffman, Esq.
____________________________
Attorney for Plaintiffs
800 Third Avenue, 29th Floor
New York, New York 10022
(t): (212) 486-6322
(f): (212) 980-8748
-and-
Alexander Fishkin, LL.M., LL.D
350 Fifth AvenueNew York, New York 10118
(t): 212-695-3151
(f): 212-695-9837
END NOTES
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NOTE 1. Semyon Yukovich Mogilevich ("Mogilevich"), is one of the most notorious figures in the Russian organized crime hierarchy, a twice convicted felon, described by British authorities in one classified report as "one of the world's top criminals" whose income comes from "large-scale extortion, prostitution, arms dealing and drug trafficking."
NOTE 2. US$1 at the time equaled approximately 5,000 rubles.
NOTE 3. The most senior officers of the BONY and Inkombank frequently met in New York and Moscow. Such included, from Inkombank's side: Vladimir Vinogradov, Chairman, Alexei Kouznetsov, First Deputy Chairman, Vladimir Doudkin, Deputy Chairman, Roman Zdrayevsky, Deputy Chairman, Janna Boulakh, New York Representative, Anna Koursikova, Deputy Chairman and Treasurer; and from BONY's side: Thomas Renyi, President, Natasha Gurfinkel, Senior Vice President, Vladimir Galitzyne, Vice President, Don Wrobel, Don Monks, Sam Shevalier, Paul Turitsin, Tatyana Golubenko Sierant, Senior Administrator of BONY's ADR program, Gerrit B. Parker, Jr., Assistant Treasurer for ADR, Jyrky Talvitie, Vice President (Moscow), L. Edwards, T. Stanford (ADR)NOTE 4. The "2nd Issue" refers to the sale of stock to the investors.
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