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
- 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
- As a proximate cause of the defendants' fraud, plaintiffs suffered a total loss of their
investment and the returns to be paid thereon.
- 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.
- 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
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
- 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
- "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
- " 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
- "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
- 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
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,
-. 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
-. 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
-. 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
- 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
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
- 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
- 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
- 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
- JS "Inkom-Invest" - 5,000 shares priced at US
- ADS "Vneshstroykomplex" - 3,000 shares priced at US
- JSC "Nosta" - 2,500 shares priced at US
- Plant "Sokol" - 2,500 shares priced at US
- VO "Oboronexport" - 1,500 shares priced at US
- JS "Stavropolpolimer" - 1,500 shares priced at
- Aspiration Holdings, Ltd. - 1,200 shares priced at US
- AK "Transneft" - 1,000 shares priced at US
- VAO "Tractoroexport" - 1,000 shares priced at US
- GPVO "Promsyrioimport" - 500 shares priced at US
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
- Subsequently Inkombank was ordered liquidated. Plaintiffs lost their entire
- 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
- 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
- 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
- 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
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
Alexander Fishkin, LL.M., LL.D
350 Fifth AvenueNew York, New York 10118
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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
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.
NOTE 4. The
"2nd Issue" refers to the sale of stock to the investors.