In a decision Tuesday morning, a judge in London quashed the latest attempt by Russia to retaliate against Bill Browder, the hedge-fund manager who won human rights sanctions against the Russian officials involved in the 2009 death of Sergei Magnitsky. A Moscow employee of Browder’s Hermitage Capital, Magnitsky was arrested in 2008 by the very Russian officials he’d accused of participating in a $230 million theft from Russia’s treasury. Magnitsky died in a Moscow prison after jailers beat him and denied him medical care. As chronicled by Barron’s and others, that tragedy turned Browder from a money manager into a human rights crusader.
Britain’s Chancellor of the High Court Sir Geoffrey Vos refused to let a Russian bankruptcy receiver use England’s courts to pursue a $21 million claim against Browder, which the Chancellor said was part of Russia’s long-running campaign of retaliation against Browder. Chancellor Vos also ordered the Moscow bankruptcy official Kirill Nogotkov to pay Browder and two colleagues 1.6 million British pounds ($1.8 million) after finding that Nogotkov had misled English courts in seeking enforcement of the Russian rulings.
“This is another rebuke for the Russian government in their attempt to abuse the Western legal system,” Browder told Barron’s.
In July 2016, Nogotkov got an order from a lower-level British court that recognized the Russian bankruptcy of Dalnyaya Step, a former unit of Hermitage that Russian authorities made the focus of a 2013 criminal case in which Browder was tried in absentia and Magnitsky, posthumously, on charges of tax fraud. Britain, and the international police agency Interpol, have called that case politically motivated and repeatedly refused Russia’s arrest warrants against Browder.
But in seeking English court recognition of Dalnyaya’s Russian bankruptcy, Nogotkov failed to tell the court that the Dalnyaya case concerned Browder and Hermitage, whom Nogotkov wanted to pursue for some of the $21 million that Russia claims Dalnyaya owed in taxes.
“His failure to alert the court to the public policy issues and the political background was inexcusable,” the Chancellor said of Nogotkov. “The court could not determine without cross-examination whether or not Mr. Nogotkov’s breach of duty was deliberate or innocent, but it had serious doubts about the mistake being a genuine one.”
Chancellor Vox noted that Nogotkov wanted to use Dalnyaya Step funds to pay the 1.6-million-pound court award. In August Nogotkov got a Russian judgment for $21 million against the Russian unit of HSBC Holdings (ticker: HSBC) for allegedly violating that country’s banking rules in sending dividends from Dalnyaya Step to Hermitage. HSBC disputed the claim and appealed, but lost its appeal in November.
Nogotkov’s plan to pay indemnity costs out of the Dalnyaya estate, said the chancellor,“smacked of an attempt to protect his own reputation at the expense of the bankrupt estate. Such a course would be quite unthinkable for an English insolvency practitioner in an English insolvency.”
Responding to questions from Barron’s, Nogotkov denied in an email that he was part of a Russian state campaign against Browder. “I am independent official receiver,” Nogotkov wrote.
Nogotkov told Barron’s that his failure to alert the English court, or give notice to Browder, was a strategy devised by Nogotkov’s lawyers. “I think that full and frank disclosure was unnecessary,” said Nogotkov in his email,”because I didn’t have any material claims to Hermitage parties.”
Nogotkov’s bankruptcy activities figure in another Russian court controversy that has found its way to Western courts. In Manhattan’s federal district court, a wealthy former politician in Russia named Sergey Poymanov filed a fraud case last year against Nogotkov and others, alleging that the bankruptcy receiver was part of a corporate raiding conspiracy that stole control of Paymanov’s granite building-products business. U.S. District Court Judge Paul G. Gardephe has allowed Nogotkov and the other defendants additional time to answer the claims, but in his email Nogotkov told Barron’s that he is innocent of Poymanov’s allegations.