Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice (25 page)

I finished my walk and got to my desk. A few minutes later Reuters published a red headline: “Hermitage CEO Browder Barred From Russia.”

The secret was out. My phone immediately lit up like a Christmas tree. Calls came from the
Wall Street Journal
, the
Financial Times
,
Forbes
, the
Daily Telegraph
, the
Independent
,
Kommersant
,
Vedomosti
, Dow Jones, AP, the
New York Times
, and about twenty other news organizations. This was exactly what Simon Smith had warned me about, and now it was happening. There would be no way for the Russians to save face, no way to back down. Nothing would come of Russia’s National Security Council meeting anymore. My fate had been decided, and from that moment I knew that it was official: I was done with Russia.

Except Russia was not done with me.

When the Russian government turns on you, it doesn’t do so mildly—it does so with extreme prejudice. Mikhail Khodorkovsky and Yukos were prime examples. The punishment for presenting a challenge to Vladimir Putin went beyond Khodorkovsky to anybody who had had anything to do with him: his senior managers, lawyers, accountants, suppliers, and even his charities. By early 2006, ten people connected to Yukos were in jail in Russia, dozens more had fled the country, and tens of billions of dollars of assets had been seized by the Russian authorities. I took this as an object lesson, and I was not going to allow the Russians to do similar things to me. I needed to move my people, and my clients’ money, out of Russia as quickly as possible.

I brought Hermitage’s chief operating officer, Ivan Cherkasov, to London to help do these things. Ivan had joined Hermitage five years earlier from JP Morgan, and he was the one who hounded brokers, chased banks, and organized the payroll. He was thirty-nine, tall and telegenic, spoke flawless American English, and did his job perfectly.

Ivan set up a war room in our serviced offices on Tavistock Street in Covent Garden and got to work. Getting our people out was relatively easy. Within a month everyone at Hermitage whom I thought was at risk, as well as their families, was safely outside of Russia.

The harder part was selling billions of dollars’ worth of Russian securities without anyone knowing. If the market caught wind of what we were doing, brokers and speculators would engage in a practice called “front-running.” In our case, if brokers learned that Hermitage was going to sell all of its Gazprom holdings, those brokers would
try to sell their shares first, driving down the price and potentially costing Hermitage clients hundreds of millions of dollars in that one stock alone.

To avoid this, we needed to find a broker who could execute the fund’s sell orders with complete confidentiality and discretion. However, brokerage firms are generally not a trustworthy bunch, and local Russian brokerage firms are
particularly
untrustworthy. We also couldn’t choose a major Western brokerage house that we had previously done business with because, as soon as it started executing our orders, the other brokers would put two and two together and conclude that Hermitage was selling, causing them to start dumping their shares.

This didn’t leave us with many options. We looked at who was left and zeroed in on an affable thirty-two-year-old broker who headed a two-person trading desk at one of the big European banks in Moscow. He’d tenaciously been trying to get some business from us for years, and now we were going to give him his shot.

Ivan called him up and told him that his persistence was about to pay off. “There’s one thing, though. We can only do this if you can swear to complete secrecy.”

“Of course,” he said. “I won’t let you down.”

The next day the broker received a sell order for $100 million. He was probably expecting $1 million—$5 million max—but never in his wildest dreams $100 million. It was likely the biggest order anyone had given him in his career.

Over the next week, he sold $100 million of our shares without any market impact or any information leak. He reported his results proudly, thinking he had completed the job, but was completely surprised when he got another $100 million sell order. Again, he executed this flawlessly. He continued to receive large orders from the fund over the next two months, and in the end he sold billions of dollars’ worth of Russian stocks for us without any leaks. This virtuoso performance transformed his little operation from total obscurity into his bank’s most successful European trading desk. Most importantly,
Hermitage had successfully removed its money from Russia without our enemies ever knowing.

With our people and money safe, we had eliminated the main levers that the Russian government could use to harm us. Whatever their next move might be, it couldn’t be that daunting.

I felt better after achieving this, but dealing with the loss of confidence from my clients was a different matter. Most had invested in Hermitage because I was on the ground in Moscow. When I was there, I could identify profitable investments and protect their capital if something went wrong. Now, all of a sudden, I could do neither.

The first person to point this out was Jean Karoubi, the man I’d first approached as an investor back in 1996. Jean had become one of my closest confidants over the years and always had his finger on the pulse of the markets. When Reuters broke my visa story on March 17, Jean called me almost immediately and said in an uncharacteristically serious tone, “Bill, we’ve done great together. But I’m having a hard time coming up with a reason why I should keep my money in the fund when you’ve fallen out with the Russian government.”

Hearing this from one of my earliest and most enthusiastic supporters was a bit of a shock, but he was right. The last thing I wanted to do was try to convince him to keep his money in the fund only to have things go further off the rails with the Russians. The only logical thing for him to do was take his winnings off the table.

In the following days I had similar conversations with many other clients who’d come to the same conclusion.

I knew what was coming: redemption orders, and lots of them.

The next available date that investors could withdraw money from the fund was May 26, and they had to submit their redemption requests eight weeks before that. So on March 31 I would get my first look at how bad the situation was.

At 5:20 p.m. that day, I received the redemption spreadsheet from HSBC, the fund’s administrator. Normally, the subscriptions and redemptions were listed on a single page. In a busy quarter it might be
two or three pages. But this spreadsheet was ten pages long with 240 line items of people requesting their money back. I quickly flipped to the end and added it all up. More than 20 percent of the fund was redeeming!

That was a huge number by any measure, and I knew it was just the beginning. I was standing on the precipice. Everything I’d worked for was starting to fall apart. The only thing that might possibly change the situation was getting my Russian visa reinstated. But I had given up on that.

Surprisingly, the British government hadn’t. In mid-June 2006, I got a call from Simon Smith, head of the Russia desk at the Foreign Office: “We’re working an interesting angle for sorting out your visa problem, Bill. But we wanted to make sure you’re still interested in returning to Russia before we move forward.”

“Of course I’m interested, Simon!” I said enthusiastically. “But I thought you wouldn’t do anything more after the media circus.”

“The press didn’t help, that’s for sure. But we haven’t given up,” Smith said reassuringly.

“What do you have in mind?”

“As you probably know, Russia is hosting the G8 summit in Saint Petersburg on the fifteenth of July. We were thinking of putting your case on the prime minister’s agenda to discuss directly with Putin.”

“Really. . . . That would be amazing, Simon.”

“Don’t get your hopes up too much. It’s not a done deal, Bill, but we are working on it.”

We hung up and I stared out the window. How could I not get my hopes up? Just as easily as my visa refusal had ruined my business, a visa reinstatement could restore it.

As the G8 drew nearer, I was a bundle of nerves. A positive outcome from Prime Minister Tony Blair’s intervention would be life-changing. However, as the days and weeks passed, I began to have my doubts. I hadn’t been able to get in touch with Smith. I tried to keep a cool head, but I couldn’t figure out why he had been so encouraging before and then suddenly gone quiet.

When I couldn’t stand it any longer, I called Sir Roderic Lyne, the former British ambassador to Russia who advised HSBC, to see if he had any insights. He was surprised that Smith had even suggested putting my issue on the prime minister’s agenda and encouraged me to keep my expectations low. Based on his experience, issues always emerged at summits that trumped the carefully crafted agendas.

I tried to take his advice, but six days before the summit, Elena and I went to have lunch at Richoux, a restaurant on Circus Road in St. John’s Wood. As we sat at our table, she casually picked up the
Sunday Observer
and flipped through it. Her eyes lit up as she said, “Bill, look at this headline: ‘Blair to Raise Fund Manager’s Case with Putin’!” I grabbed the paper from her and started reading. It was a total confirmation of what Smith had discussed with me. The most salient sentence was to the point: “The prime minister will use the G8 summit in Saint Petersburg next weekend to ask Russia’s president to lift all restrictions on Browder.”

Elena looked at me in shock. “This is amazing,” she said.

The
Observer
article also surprised my clients, and some started to postpone their redemption decisions until after the G8.

My spirits were as high as they could be, but then, three days before the summit, Vadim pulled me aside. “Bill, you need to see this.” He pointed to a Bloomberg headline on his computer screen. I leaned forward and scanned a story about Hezbollah militants in Lebanon who’d fired antitank missiles into Israel. Three Israeli soldiers were dead, and five others had been kidnapped and taken into Lebanon.

“What does this have to do with us?” I asked incredulously.

“I’m not sure, but this looks like a war’s starting in the Middle East. That may distract Blair from bringing up your visa discussion at the G8.”

Sure enough, the following day Israel launched air strikes on targets in Lebanon, including the Beirut airport, resulting in forty-four civilian deaths. Russia, France, Britain, and Italy immediately criticized Israel for a “disproportionate” use of force, and the United States publicly condemned the Hezbollah militants. Vadim was right.
The G8 summit might well disintegrate into a frantic Middle East peace summit, with Blair’s intended agenda jettisoned.

As the summit began on Saturday, I didn’t know what was going to happen, and I couldn’t reach anyone in the British government over the weekend. The summit dragged on, but all the news reports were about Israel and Lebanon—nothing about my visa.

As the summit wrapped up, Putin was scheduled to give the concluding press conference. The room was packed. Hundreds of journalists from across the globe were all hoping for their chance to ask Putin a question.

After about twenty minutes of softball questions, Putin called on Catherine Belton, a pretty, diminutive, thirty-three-year-old British journalist at the
Moscow Times
. She took the microphone and tentatively addressed Putin. “Bill Browder was recently denied a Russian entry visa. Many investors and Western diplomats are concerned about this and don’t understand why this happened. Can you explain why he was denied an entry visa without any explanation?” She then sat, held her notebook on her knees, and awaited his answer.

The room went quiet. Everyone knew that Putin had been caught off guard. He let a couple seconds pass before uttering, “Please say it again. Who exactly was denied a visa?”

Catherine stood back up. “Bill Browder. He is CEO of the Hermitage Fund, which is the biggest investor in the Russian stock market. And I believe the prime minister of the United Kingdom might have discussed this with you today.”

Putin frowned and replied tartly, “Well, to be honest I don’t know for what reasons any particular individual may be denied entry into the Russian Federation. I imagine that man may have violated our country’s laws.”

That was it. When I saw this, I knew Blair hadn’t brought up my case, and that my visa wasn’t going to be reinstated. More importantly, if I translated this from Putin-speak into plain English, what he was saying was crystal clear: “We never mention enemies by name,
and that includes Bill Browder. I am now instructing my law enforcement agencies to open up as many criminal cases against him as possible.”

If you think this interpretation is paranoid or an exaggeration, it wasn’t. If anything, I wasn’t being paranoid enough.

After Putin’s remarks, my clients had their answer. Nothing good was going to happen in Russia. The next redemption date was August 25, and this time another 215 clients withdrew more than 30 percent of the assets from the fund. In my business this is what’s called a run on the fund, and like a run on a bank, once it starts it’s almost impossible to stop. Unless I could somehow pull a rabbit out of a hat, the Hermitage Fund was quickly going to be forced out of business.

I’d handled hundreds of ups and downs throughout my career. Stocks rise and fall often for no reason, and I’d had to develop a thick skin to absorb bad news and not lose confidence. I hadn’t lost confidence after the fund lost 90 percent of its value in 1998, and I was rewarded for sticking it out when the fund fully recovered.

But this time was different.

My whole professional life had been geared toward being an investor in Russia. I’d never thought about anything else. But now, since I could no longer operate in Russia, I
had
to think about something else. What were my options? I couldn’t imagine returning to America to compete against thousands of people just like me. Nor could I imagine setting up in a new place such as China, only to spend a decade trying to establish myself.