Bill Browder on Russian corruption and the experience of losing $900 million

and eventually the Russians defaulted on their bonds devalued their currency by 75% and I lost $900 million $900 million it was a a uh shocking U shocking thing to to be sitting in the middle of I was the face of the Russian stock market on the way up and I was the face of the Russian stock market on the way down and um it was worse than just the financial loss it was a major public humiliation when I showed up in Russia in 1992 for the first time and started looking at these privatization schemes that were going on um I said to myself my God this country is is basically being given away for free that the the market capitalization of Russia at that time was 10 billion dollar this is a country with um 10% of the world's oil third of the world's natural gas Etc so I said um I'd like to invest in some of this stuff and um everybody said to me what are you crazy it's Russia we started the fund The Hermitage Fund in 1996 the um my anchor investor and business partner was manam Edmund saffra who is a a true and well-documented Visionary he's since passed away um he put up the $25 million to be the investor I moved to Moscow I got started and um it was just his money at that point and uh when I got to Moscow um I was the only um Wall Street educated investor sitting in Russia at the time and so I had a free run of the place there was nobody else competing with me and I had a huge information Advantage the first month of my funds performance um we were up 40% um the um at this point Edmund's clients came to us and said this is this sounds like a really exciting investment program you're running could we get involved and Edmond said no no no no no we're going to wait until this um guy has audited till he's till we know him a bit better I I normally don't do business with people I haven't been know knowing for 25 years um this guy could be stupid he could be a crook God knows what I don't want to put my name next to his the next month the fund went up 35% um at this point his clients the guys who showed up the in the first month um said Edmund why why are you being so greedy we we wanted to be involved why are you keeping all this for yourself and they said in fact we don't like that we're going to take our money out of your bank and he couldn't have ever imagined that he would of um uh Lo lost customers because the fund that he was that that he had partnered up with me would do so well and so we opened up the fund for new investors by the end of the first year we had $150 million in management we were up um in our first year roughly 150% in the second year the fund was up 228 per. it was the best performing Fund in the world in um 1997 and we had gone up from $25 million when we had started to more than a billion dollars I was the um I was at this point in my early 30s um I had more than a billion dollars which is a huge amount of money back then in in the world of fund management and certainly a huge amount of money for Russia best performing Fund in the world my clients were sending their private jets to take me on their Yachts to celebrate their celebrate my success in this whole thing and any of these one individ any any of these individual things would have been great accomplishments but if you put them all together for anyone who's had any experience in the financial markets or on Wall Street that was the biggest sell signal there ever was and and um and sure enough in 1998 um the Russians um well first the Asian crisis hit um Asian currencies started to devalue then eventually the Russians couldn't roll over their um domestic uh debt and and eventually the Russians defaulted on their bonds devalued their currency by 75% and I lost $900 million $900 million it was a a shocking U shocking thing to to be sitting in the middle of I was the face of the Russian stock market on the way up and I was the face of the Russian stock market on the way down and um it was worse than just a financial loss it was a major public humiliation well from there everybody I knew who was in Russia left um it was like being at the airline baggage carousel when everyone's found their bag and you haven't so I'm sitting there 90% down and I'm determined not to leave and I'm determined for both Financial but but but more importantly for for moral reasons and and psychological reasons to stay and fight it out I stayed and and in theory all the Investments that I had should have gone up a lot because when you have a devalued currency and oil companies um the the price of oil stayed the same but the input price for the companies the cost has just gone down by 75% so so all all the shares should have been making a lot of or I should say all the companies should have been making a lot of money but they weren't because all of the money was then being stolen by the oligarchs who were running these companies and so there I was trying to dig myself out of this 90% hole and the oligarchs were about to try to steal the last 10% from me so what do I do I um I decide I'm going to fight the oligarchs how do you fight oligarchs well they certainly didn't teach me that at Stanford Business School and um we had to make it up as we were going along and I didn't have a whole lot of um uh uh Quivers in my bow in order to uh to have this fight but the one thing that I knew how to do and knew how to do well was to research companies and in addition to researching the economics of companies I started to learn how to research the fraud that was going on in companies we called it stealing analysis so what we would do is we go out and interview people who had some connection to the company whether they be competitors customers suppliers ex-employees and get them to tell us how the stealing was taking place and it turned out that there is just incredible amount of animosity from the people who were um watching all the stealing towards the people who were stealing and anybody who knew anything about it um was happy to share all their information it's the most bureaucratic country in the world and so they keep track of everything somewhere and there's guys in these little dark Dusty offices and Ministries that have full databases of all information you'd ever want to know about anything and so we by taking these interviews we do combining with all this bureaucratic information we were able to determine um uh shockingly accurate descriptions of who was doing the stealing how much they were stealing and and so on and so forth the most glaring example of this was with gas promp the national gas company and we determined that nine members of the management of gas prom had stolen an oil company the size of Kuwait um out of gas prom between 1996 and 1999 so we took this information and we shared it with the Wall Street Journal the financial times New York Times Etc they wrote the stories the Russian press picked it up and the whole thing went Skyhigh and in the end we discovered that we had an unwitting Ally in our fight somebody who we never went to to ask for help but who seemed to have the same interests that we did at the time which was the then President of Russia Vladimir Putin um it turned out that we were fighting with the oligarchs who were stealing money from us and he was fighting with the oligarchs who were stealing power from him and so in the case of gas prom he stepped in and fired the CEO after we did this big Expose and replaced him with somebody whose job it was not to steal assets and the first thing that happened was the share price doubled then doubled again then doubled again after that the share price of gas prom went up 100 times from the beginning of this campaign to 2005 and um at this point I realized I was on to something which was um if you could um uh research how stealing was taking place in Russian companies and then expose it um the share price went up and the share price went up because they stopped stealing and um if they stopped stealing then not only were we making money for ourselves but we were making Russia into a better more civilized country and it's very rare in life to be able to make money and do good at the same time you can either focus on making money or you can focus on doing good but we for a brief period of time for about four years from 1999 to 2003 we could do both in November of 2005 after having fought um and exposed corruption in a number of big big companies I was flying back to Moscow on November 13th from a business trip abroad and I was stopped at Shero to airport I was um taken away from the VIP lounge put in the airport Detention Center overnight and then deported back to London the next day and a few weeks later we got a letter from the foreign Ministry saying i' had been expelled from the country because I was a threat to National Security and obviously my threat was exposing the the threat I was making to National Security was exposing the corruption in Russian companies at this point um uh I realize that um when when the Russians turn on you they don't just turn on you mildly they turn on you in a very aggressive way and so um we liquidated all of our Holdings in Russia I evacuated my all of my staff and I thought that that was the end of my story with Russia it turns out that um it was just the beginning of the nightmare of what was to come um 18 months later on June 4th 2007 25 police officers raided my office and 25 more officers raid the office of my American Law Firm Firestone Duncan they were specifically raiding the offices to get hold of the the stamps and seals and certificates of our investment holding companies and once the police got those documents they then used those documents to fraudulently re-register the companies out of our name into the name of a man who had been convicted of murder and let out of jail early in order to put his name on these documents um at this point we went out and hired seven lawyers from four different law firms to help us unravel this this crazy um mess that was being sort of engineered by the law enforcement agencies and one of the lawyers was a young man named Sergey magnitsky we instructed Sergey to go and investigate the whole story and he came back to us couple months later and he said um I figured the whole thing out he said first of all the um police not only have seized your companies but they've also used the documents They seized to um fabricate a bunch of backdated contracts to claim that your companies owe a billion dollars to three empty shell companies the shell companies then took your companies to court and lawyers were hired by the people who stole your companies to defend your stolen companies in court in these strange lawsuits and the lawyers instead of defending the companies pled guilty to a billion dollars of fake liabilities we were shocked Sergey then went on to say that the that the um uh the police the at that at this point the the judges awarded a billion dollars of Judge Jud ments against our companies and then the police took those judgments to all of our banks looking for a billion dollars of assets to seize based on a bunch of fake Court judgments thankfully we didn't have any assets left in the country and they and they walked away from that part of their crime empty-handed but Sergey discovered something more which was in addition to trying to steal our money they went to the tax authorities and they said to the tax authorities these companies that paid $230 million of taxes in the previous year shouldn't have and they came up with this concoction which which was that because the companies had declared a billion dollars of profits in the previous year they used these fake Court judgments of a billion dollars of fake losses to come up with a new net profit of zero they applied for an amended they applied an amended tax return on the 23rd of December 2007 asking for $230 million tax refund the largest tax refund in Russian history it was awarded one day later on Christmas Eve 2007 no questions asked at this point we figured this couldn't possibly have been a crime approved by the bosses it might have been approved to go after us and steal our money but it couldn't have possibly been approved to steal $230 million of the Russian government's money and we figured if we just um shared this information with enough different law enforcement agencies in Russia that the good guys would get the bad guys and that would be the end of this horrible nightmare we filed 15 different criminal complaints with different law enforcement agencies expecting SWAT teams and helicopters the next day to go after the bad guys well there were SWAT teams and helicopters but they weren't going after the bad guys they went after all seven of our lawyers from four different law firms I asked all of our lawyers to leave the country six of the seven agreed to leave but Sergey refused to go he said I've not broken any laws I'm not some leaving and he stayed and not only did he stay he testified against the police officers who um who sees all the documents the same police officers one month later in November 24th 2008 came to his home at 8 in the morning in front of his wife and two children arrested him put him in pre-trial detention and started to torture him to get him to withdraw his testimony and to sign a false confession saying he stole the $230 million Sergey refused they put him in a cell with um eight inmates in four beds and left the lights on 24 hours a day to sleep deprive him they put him in a cell with no heat heat and no window panes in December in Moscow so he nearly froze to death they put him in a cell with no toilet just a hole in the floor where the sewage would bubble up every time they came to him with this false confession for him to sign he refused as 6 months went by he ended up getting sick he lost 20 kilos developed pancreatitis and gall stones and was prescribed to have an operation on the 1st of August 2009 one week before his scheduled operation they came to him with the same proposal he again refused and they abruptly then moved him to buira prison which is a Maximum Security Prison with no medical facilities and at buira his health completely broke down he went into constant agonizing earpiercing pain and they absolutely refused him medical attention he applied officially in writing on 20 different occasions to be treated to be medically treated and they either ignored or outright denied his request for medical attention on the night of November 16th 2009 he went into critical condition only then did they move him to a prison with the hospital but instead of putting him in the hospital emergency room they put him in an isolation cell chained him to a bed and they allowed eight Riot guards to come into his cell and beat him with rubber batons for 1 hour and 18 minutes until he was dead he was 37 years old he died on the night of November 16th 2009 leaving a wife and two children I believe that that Russia is currently a criminal regime it's a state run for criminal purpose criminal purposes to steal money from 140 million decent hardworking honest Russians that's what the government of Russia is doing right now can these people Be Tamed no they can be convicted they can be expelled but they can't be tamed can Russia as a country Be Tamed can Russia be a proper normal governable honest European country I from from the vast millions of good Russians that there are I think they have every capability and capacity to do that will it happen anytime in the short term I don't know I don't think so I think that the current regime um is an ugly regime and I think that that what if the current regime is um uh disempowered um the next one that's going to come is not going to be a prettier one it's going to be a nationalist regime because that's the that's the The Logical next step when you have a very small group of people stealing from everybody then people get popul and Nationalist and that's probably where it's going to go in the near term so I don't have high hopes for Russia in the short term but I have very high hopes for Russian people I spent 10 years there and I found them to be the most intelligent warm passionate people that you'll ever meet among any culture in the world and and uh I do love Russia because of the Russian people I just don't like the current regime

Channel: University of Cambridge Judge Business School

Views: 46,826

Keywords: William Browder, Bill Browder, University of Cambridge, Hermitage Capital Management, Russia, corporate governance

Id: 32AqentzbOQ

Length: 16min 29sec (989 seconds)

Published: Tue Dec 13 2011