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Tuesday, June 11, 2024 | Back issues
Courthouse News Service Courthouse News Service

Law Firm Booted Off $230M Russian Mob Case

MANHATTAN (CN) — Baker Hostetler cannot now represent the accused perpetrator of a $230 million fraud linked to the Russian mob since the white-shoe law firm already represented one of the scheme's victims, the Second Circuit ruled, calling the circumstances of the case "extraordinary."

U.S. authorities began unraveling the scheme in fall 2013, bringing a civil forfeiture action to recover the illicit proceeds of scheme to bilk Russian taxpayers of approximately 5.4 billion rubles, or $230 million here.

Prevezon Holdings and New York-based subsidiaries of the Cypriot firm are accused of laundering this money by buying various real estate holdings in Manhattan.

One victim of the Russian treasury fraud, according to Monday's ruling, is Hermitage Capital Management.

In 2007, the U.S. hedge fund's Moscow office was raided by members of the Russian mob. It is undisputed that the perpetrators stole corporate identities of Hermitage's portfolio funds to fraudulently claim tax refunds from Russia.

Reuters reported that a Hermitage entity eventually retained Baker Hostetler to investigate the crime, trace the proceeds, and report their findings to U.S. prosecutors between 2008 and 2009.

Once the U.S. government filed its action, however, Prevezon hired Baker Hostetler for its defense.

Though the move prompted a motion to disqualify by Hermitage, accusing the firm of having "switched sides," Baker Hostetler insisted that no conflict existed because both Prevezon and Hermitage were innocent.

Prevezon then pointed a finger back at its accuser, claiming Hermitage CEO William Browder may have played a role in the raid on his own firm, and then fooled authorities in the United States and abroad to avoid a tax fraud conviction in Russia.

The Russian government has convicted Browder in absentia, but Interpol rejected an arrest warrant against the CEO, finding the prosecution "predominantly political in nature."

One of Hermitage's lawyers and auditors, Sergei Magnitsky, died in Russian custody at the age of 37, becoming an international cause célèbre for human-rights violations by the Kremlin.

Earlier this year, U.S. District Judge Thomas Griesa found no conflict-of-interest in what appeared to be Baker Hostetler's game of legal musical chairs.

"This case is not about Hermitage, nor is this case centrally focused on the Russian fraud," Griesa wrote on Jan. 8. "Even if it were, to the court's knowledge, Hermitage was never the target of a U.S. investigation for the Russian fraud, let alone an actual lawsuit. In this way, Moscow did not 'switch sides,' nor is he now accusing a former client of the 'same crime' that he was 'retained to defend against.'"

The Second Circuit unanimously disagreed in a scathing, 37-page opinion on Monday.

"If crime victims fear that the attorneys they hire may turn against them, they may be less likely to assist government in its investigations," U.S. Circuit Judge Rosemary Pooler wrote for a three-judge panel.

Pooler said the "extraordinary circumstances" of this case require the rarely granted writ of mandamus.

"It is rare that a nonparty, nonwitness will face the risk of prosecution by a foreign government based on the potential disclosure of confidential information obtained during a prior representation," the 37-page opinion states. "That real risk, however, coupled with the misapplication of the law by the district court, outweighs the delay and inconvenience to Prevezon of obtaining new counsel."

Hermitage's attorney Jacob Buchdahl, from the firm Susman Godfrey, said his client is "thrilled with the result."

"It was an extraordinary remedy for an extraordinary case," he added in a phone interview.

Prevezon's attorney Michael Mukasey, a former U.S. attorney general now working for Debevoise & Plimpton, said his client is "considering its options."

"We are disappointed with the Second Circuit's decision, particularly that the panel did not view the underlying facts the same way as did Judge Griesa, who was more familiar with them," Mukasey said in an email. "We believe the decision is also inconsistent with relevant circuit case law."

Baker Hostetler's partner John Moscow did not immediately respond to a request for comment.

The U.S. Attorney's Office in Manhattan supported the disqualification motion but declined to comment.

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