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Doubts Raised About Source in Bank of New York Inquiry

The New York Times
By TIMOTHY L. O'BRIEN
December 17, 2000

In the months since news broke that billions of dollars in suspect Russian money had flowed through the Bank of New York, an obscure, йmigrй lawyer has done as much as anyone to keep the story alive and build pressure on the bank.

Emanuel E. Zeltser, a classically trained pianist who passed the New York bar exam without any formal legal training in the United States, has positioned himself as the kind of savvy, inside source that journalists and investigators covet.

Material circulated by Mr. Zeltser and his associates has figured prominently in articles in The New York Times, The Wall Street Journal, USA Today and the financial wire service Bridge News. Mr. Zeltser portrays himself as an anticorruption crusader, committed to exposing the truth about Russian improprieties.

But a look at his business dealings and his past, based on interviews and court records, raises questions about whether reporters and others have been too willing to accept help from a person whose ethics and credibility are in dispute.

In court papers and sworn testimony, former business associates have accused Mr. Zeltser of faking financial and legal documents. An administrator of the Moldovan law school from which he purportedly graduated has signed an affidavit asserting that his law diploma is a "fabrication" -- a significant charge because it was his Soviet-era law degree that allowed him to take the bar exam in this country. State and federal authorities are currently examining Mr. Zeltser's license to practice law in New York.

The federal investigation of the Bank of New York continues and the bank has acknowledged that it failed to supervise its Russian accounts properly. The bank has not been charged with wrongdoing.

The sprawling investigation has generated enormous coverage by the news media. But some of the flourishes that Mr. Zeltser has managed to add to the story, while not undermining the importance of the investigation, are in question.

Doubts have emerged about the authenticity of at least one document distributed to reporters by Mr. Zeltser and his associates -- an internal World Bank memo that suggested that an official at the bank was conspiring with a Bank of New York client to trade illegally on inside information.

Mr. Zeltser denied circulating forged documents and insisted in interviews that the accusations against him in court cases are attempts by Russian organized crime to silence him.

"Players on the Russian side are very dangerous and very brutal," Mr. Zeltser noted in a letter to The Times. "I and others allied with me who sought to expose their criminal operations in the U.S. were subjected to vicious harassment, death threats and actual physical retaliations."

Mr. Zeltser himself is not above threatening retribution. When The Times informed Mr. Zeltser that it intended to investigate his past, he promised to "retaliate."

Within days, he and his associates unleashed accusations, some posted on his Web site, that this New York Times reporter was in league with the Russian mob, intimidated witnesses in a federal court case, sexually harassed one of Mr. Zeltser's female associates, conspired with the Bank of New of York and, ultimately, developed a romantic interest in Mr. Zeltser himself.

Mr. Zeltser's interest in the Bank of New York inquiry is not selfless. Days after the story erupted, he laid the groundwork for a $2 billion lawsuit against the bank. He later joined forces with Milberg, Weiss, a New York law firm that is bringing its own suit against the Bank of New York. Milberg declined to comment on the record about its dealings with Mr. Zeltser.

Mr. Zeltser emigrated from the Soviet Union in 1974. Settling in Richardson, Tex., he cleaned tables at a Burger King and played piano in a local strip joint before moving to New York a year later to study music at the Juilliard School.

But he left Juilliard before completing his degree and by the early 1980's had undergone the first in a series of transformations, emerging as an entrepreneur engaged in a broad range of business activities.

Mr. Zeltser's associates, who have requested anonymity because they say they fear reprisals, have said his ventures netted substantial sums. Those ventures also produced several lawsuits.

One case arose over a small New Jersey medical clinic called American Urgy. Mr. Zeltser began working as an adviser to the clinic in late 1987. Not long after, according to a civil lawsuit filed against him and others in New Jersey Superior Court in 1988 by one of the clinic's founders, Mr. Zeltser helped hatch an illegal takeover of the clinic that allowed him to divert its assets for his "own use."

During the trial, one of American Urgy's doctors, Vivian Bethala, testified that financial records Mr. Zeltser tried to introduce in court proceedings had been falsified.

Mr. Zeltser disputed all the accusations against him in that case, but was found liable and eventually assessed about $2 million in damages -- damages that remain unpaid. In a 1989 deposition taken for the case, Mr. Zeltser described himself as a "nonlawyer." The next year, however, his status changed.

In 1990, Mr. Zeltser took advantage of rules that allowed immigrants holding overseas law degrees to take the New York bar exam. He passed the bar exam on his first try.

He told New York legal authorities that he had received a law degree in 1974 from Kishinev State University in his native Moldova. Kishinev has no record of Mr. Zeltser's attendance; most of the classes he claims to have taken were not part of the school's curriculum. He does not appear in the class photo and his diploma is conspicuously different from those of other students.

Mr. Zeltser acknowledged the inconsistencies. But he contended that the reason there was no record in Moldova of his attendance at Kishinev and the reason his course work and diploma were so singular, was because he was enrolled in a top-secret program in international law that few people knew about. He also asserted that his original law school records were destroyed during the collapse of the Soviet Union.

An affidavit submitted in a lawsuit filed in federal court in Manhattan by Mr. Zeltser against Inkombank, once one of Russia's largest banks, contradicts this scenario. In the affidavit, George S. Zhitar, personnel director at Moldovan State University, the successor school to Kishinev, described Mr. Zeltser's diploma as a "fabrication." Mr. Zhitar said the records of every law student who attended the school between 1959 and 1997 were intact and on file.

Mr. Zeltser's nascent legal career got its biggest boost in 1993 when he began working for Inkombank.

Inkombank, which collapsed in 1998, is today seen as one of Russia's most disreputable banks, suspected of pilfering the deposits of thousands of average Russians.

The bank first retained Mr. Zeltser to handle lease disputes in New York. But Mr. Zeltser graduated to bigger things when he and an urbane Shearson Smith Barney stock broker named Donald Redfern linked up several years ago.

The duo helped Inkombank establish a number of offshore accounts into which the Russian bank transferred about $30 million, according to court documents. Mr. Redfern, who now works for Bear, Stearns & Company, declined repeated requests for interviews.

In short order, Mr. Zeltser moved several million dollars out of the accounts by doctoring forms and forging signatures, according to associates and to documents in a lawsuit Mr. Zeltser filed against Inkombank in federal court in Manhattan.

About $2 million of those funds, according to the court papers and Mr. Zeltser's associates, was funneled into bank accounts controlled by a law partnership headed by Mr. Zeltser's ex-wife, Anna Reid, and a longtime business associate of Mr. Zeltser, Alexander Fishkin.

Ms. Reid did not respond to repeated requests for interviews, choosing instead to file police complaints asserting that this reporter was harassing her. Mr. Fishkin also did not respond to numerous requests for an interview.

Mr. Zeltser disputed in court and in interviews that he had stolen any money from Inkombank. But he acknowledged in an interview that about $2 million had moved into the Fishkin-Reid accounts from offshore entities. He contended that none of the money came from Inkombank. Although he said he could provide documentation for the actual sources of those funds, he never did.

Inkombank fired Mr. Zeltser in 1994 and he sued the bank the following year in federal court in Manhattan, saying that the bank owed him legal fees and that it had stolen money from shareholders and depositors.

That case foundered in 1998 when Inkombank became insolvent. Mr. Zeltser's legal maneuverings against the bank appeared stalled until the news broke last August that federal investigators were looking into possible money laundering at the Bank of New York.

On Aug. 19, the day that The Times first wrote about the Bank of New York inquiry, a Russian journalist, Victor Smolny, who described himself as a friend of Mr. Zeltser, called this reporter to arrange a meeting with Mr. Zeltser.

Although Mr. Zeltser has since boasted that he was the source for The Times's first article, The Times had no contact with Mr. Zeltser before Aug. 19 -- a fact that Mr. Zeltser acknowledged in a tape-recorded interview.

On Aug. 20, The Times published an article that examined the activities of Natasha Gurfinkel Kagalovsky, a former Bank of New York executive. Ms. Kagalovsky has not been charged with wrongdoing but remains a focus of the federal investigation.

In its Aug. 20 article, The Times used memos provided by Mr. Zeltser -- and independently verified before publication -- one of which indicated that Ms. Kagalovsky had lobbied the Bank of New York's chairman, Thomas Renyi, on Inkombank's behalf. Mr. Zeltser was quoted in the article, and he was cited as the source for the memos. Other than the Aug. 20 article, Mr. Zeltser has not been a source for any other articles in the newspaper.

After being quoted in The Times, Mr. Zeltser became a primary source for others in the news media. He also has boasted that the Federal Bureau of Investigation is dependent on his expertise. The F.B.I. declined to confirm or deny a relationship with Mr. Zeltser.

Mr. Zeltser's documents led to a number of different stories, many of which were tangential to the investigation at the Bank of New York but which advanced the notion of Inkombank as a rogue operation.

On Oct. 22, The Wall Street Journal reported that the World Bank was investigating whether a former Russian representative to the bank, Leonid Grigoriev, had provided inside information to Inkombank. Among the documents used by The Journal was a memo purportedly written by Mr. Grigoriev to Inkombank officials.

The Journal provided the memo and other documents to the World Bank. The bank had not been investigating Mr. Grigoriev before it was approached by the newspaper, World Bank officials said.

On Oct. 25, Mr. Zeltser called this reporter to offer the memo and other documents he said were associated with the World Bank investigation. Mr. Zeltser said he had provided the memo to The Wall Street Journal. Later, a longtime associate of Mr. Zeltser, Maria Berdnikova, asserted that she had provided the memo to The Journal.

The memo, which discusses ways to profit from inside information about the Russian bond market and is translated from Russian, almost begs for its author to be caught, containing such bald admonitions as: "ATTENTION: the very fact of our participation in this transaction must remain a secret."

Andrei Bugrov, Russia's representative to the World Bank and the official from whose office the memo was purportedly sent, said he had told The Journal before the inquiry began that he thought the memo was a fake. In its article, the newspaper quoted Mr. Bugrov as saying the accusations were serious, if true, but did not mention his concerns about the memo's authenticity.

Richard Tofel, a Wall Street Journal spokesman, declined to discuss the "particular editorial judgments" leading to the omission of those comments.

"We were convinced and remain convinced the story was fair and accurate," Mr. Tofel said, adding that Mr. Bugrov has since told Journal reporters he shares that assessment. The Journal, Mr. Tofel said, "took steps we thought were sufficient" to verify the authenticity of the document.

Mr. Bugrov, in an interview on Friday, disputed the Journal's characterization of his comments about its story. "I couldn't have said it was accurate because I told them I thought the memo was bogus," he said.

The World Bank's investigation of Mr. Grigoriev is continuing and Mr. Grigoriev did not respond to interview requests. In its story, The Journal quoted Mr. Grigoriev as initially saying "I don't believe anything was done about" the memo and then, later, flatly denying writing it.

Mr. Zeltser insisted the document was genuine and introduced this reporter to a woman he described as a European banker working in London who could attest to its authenticity. That woman, Oxana Berkounova, turned out to be a lawyer for the the World Bank in Washington. She has known Mr. Zeltser for several years and has maintained an active e-mail correspondence with him from her World Bank office.

Ms. Berkounova declined to explain her relationship with Mr. Zeltser, replying with a letter saying that this reporter had sexually harassed her and was writing the article because she had spurned his advances.

Mr. Zeltser boasted to this reporter that other news organizations, including USA Today and Bridge News, had been outlets for his documents. USA Today declined to comment on questions about Mr. Zeltser. Bridge News, which published damaging documents about the Bank of New York's Ms. Kagalovsky -- unsubstantiated documents Mr. Zeltser had shared with this reporter -- also declined to comment, citing confidentiality agreements with sources. Bridge said its policy was to corroborate documents with multiple sources.

For his part, Mr. Zeltser recently stopped discussing these matters after asking this reporter, "Do you love me?"

He closed a final conversation by saying: "I tried to give you every measure of respect, and you only tried to make a fool of yourself. Now that you have succeeded, don't call me any more."

How Confidentiality Ceases to Be Binding

Related Article Doubts Raised About Source in Bank of New York Inquiry

Relationships between journalists and their sources are predicated on the honest exchange of information. That principle is even more important when a source requests anonymity.

Emanuel E. Zeltser, the subject of the accompanying story, has argued that a profile of him is unfair because The Times agreed to use him as an anonymous source after he was quoted in an Aug. 20, 1999, story about the money laundering investigation involving the Bank of New York.

But Mr. Zeltser was repeatedly reminded that the agreement would be honored only as long as he did not muddy the reporting process with lies or false documentation.

Shortly after the Aug. 20 story appeared, Mr. Zeltser offered to arrange a meeting with a person he described as a Russian intelligence official. When a reporter requested evidence of this person's credentials, Mr. Zeltser canceled the meeting. The Times then distanced itself from Mr. Zeltser.

In October, Mr. Zeltser provided The Times with dubious documents about the World Bank and a Bank of New York executive, Natasha Gurfinkel Kagalovsky. He also misrepresented the nature of his relationship with two of his longtime associates, including a woman who works at the World Bank. At that point, the newspaper decided to proceed with a profile of Mr. Zeltser that drew on some of his remarks as a background source.

True story behind O'Brien's story